UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2008
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________

Commission File Number: 001-13549

SOLAR THIN FILMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4356228
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

25 Highland Blvd, Dix Hills, New York 11746

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(516) 417-8454

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x     No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and  “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer (Do not check if a smaller reporting company)  ¨	Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $27,999,222 as of June 30, 2008.

As of April 13, 2009, 58,136,113 shares of the registrant’s common stock, par value $.01 per share, were issued and outstanding.

Documents Incorporated by Reference: None.

EXPLANATORY NOTE

Solar Thin Films, Inc.  (the “Company”) is filing this Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which was originally filed with the Securities and Exchange Commission (“SEC”) on April 15, 2009 (the “Original Form 10-K”), to correct certain typographical errors and to include certain information which was inadvertently omitted from the Original Form 10-K.

This Form 10-K/A includes new certifications as exhibits 31.1, 31.2, 32.1 and 32.2 by our principal executive officer and principal financial officer as required by Rules 12b-15 and 13a-14 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except for the amended disclosures set forth below, the information in this Form 10-K/A has not been updated to reflect events that occurred after April 15, 2009, the filing date of our Original Form 10-K. Accordingly, this Form 10-K/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Form 10-K, including any amendments to those filings. The following sections have been amended, without limitation:

Part II - Item 9A(T.): Controls and Procedures.

Part III - Item 14.: Principal Accounting Fees and Services.

Except as set forth above, all other information in the Company’s Original Form 10-K remains unchanged. The Company has re-filed the entire Form 10-K in order to provide more convenient access to the corrected information in context.

SOLAR THIN FILMS, INC.

2008 FORM 10-K/A ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business.	4
Item 1A.	Risk Factors.	12
Item 1B.	Unresolved Staff Comments.	22
Item 2.	Properties.	22
Item 3.	Legal Proceedings.	22
Item 4.	Submission of Matters to a Vote of Security Holders.	23
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	23
Item 6.	Selected Financial Data.	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	39
Item 8.	Financial Statements and Supplementary Data.	40
Item 9.	Changes and Disagreements With Accountants on Accounting and Financial Disclosure.	41
Item 9A(T.)	Controls and Procedures.	41
Item 9B.	Other Information.	41
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	42
Item 11.	Executive Compensation.	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	53
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	54
Item 14.	Principal Accounting Fees and Services.	55
Item 15.	Exhibits, Financial Statement Schedules.	55
	Signatures	59

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PART I

Cautionary Statement Concerning Forward-Looking Statements

Our representatives and we may from time to time make written or oral statements that are "forward-looking," including statements contained in this Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. These risks may relate to, without limitation:

· our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing;

· we have a significant working capital shortage; are currently in default in payment of approximately $1.75 million of indebtedness which became due in March 2009, and may face litigation or even bankruptcy if we are unable to met our obligations;

· we need to raise additional capital which may not be available on acceptable terms or at all;

· we have a history of substantial losses, may incur addition losses in 2009 and beyond, and may never achieve or maintain profitability;

· our revenues and operating results are likely to fluctuate significantly;

· we have only generated limited revenues and may never achieve profitability;

· our equipment business is small and projected revenues may not materialize;

· our equipment business is dependent on a small amount of customers and any loss of these customers will have a negative impact on our operations;

· evaluating our business and future prospects may be difficult due to the rapidly changing market landscape;

· our future success substantially depends on our ability to significantly increase our manufacturing capacity through the development of additional manufacturing facilities;

· our “turnkey” manufacturing facility may not gain market acceptance, which would prevent us from achieving increased sales and market share;

· technological changes in the solar power industry could render our turnkey manufacturing facilities uncompetitive or obsolete, which could reduce our market share and cause our sales to decline;

· we face risks associated with the marketing, development and sale of our turnkey facilities internationally, and if we are unable to effectively manage these risks, it could impair our ability to expand our business abroad;

· we may not be able to successfully develop and commercialize our turnkey PV manufacturing facilities which would result in continued losses and may require us to curtail or cease;

· our fixed-price contracts could subject us to losses in the event that we have cost overruns;

· we are selling 49% of the equity of our Kraft subsidiary in order to acquire Buda Solar Ltd;

· we need to raise significant additional financing to complete the acquisition of Algatec Solar Ag;

· substantially all of Algatec's existing and projected 2009 revenues from the manufacture and sale of metallurgical crystalline solar modules are derived from its OEM contract with Q-Cells, which contract will expire at the end of 2009;

· our inability to perform under significant contracts would have a material adverse effect on our consolidated business and prospects;

· prices of metallurgical crystalline cells and other components may increase causing Algatec's profit margins to decrease;

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· even if we finance and complete the Algatec acquisition, there is no assurance that Algatec will be able to build equip and operate its new manufacturing facilities on schedule or within the amount budgeted for such purpose;

· we have a few proprietary rights, the lack of which may make it easier for our competitors to compete against us;

· we depend on the services of key executives and technical and other personnel, the loss of whom could materially harm our business or reduce our operational effectiveness;

· we do not maintain theft or casualty insurance and only maintain modest liability and property insurance coverage and therefore we could incur losses as a result of an uninsured loss; and

· governmental regulation may have a negative impact on our business.

Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described herein and in other documents we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and any Current Reports on Form 8-K filed by us.

Item 1. Business.

Introduction

Solar Thin Films, Inc. (the “Company”) is a business focused on the solar energy industry.  We engage in the manufacture, sale and distribution of equipment that is used to produce thin film amorphous silicon (or “a-Si”) photovoltaic solar panels or modules and provide turn-key a-Si module manufacturing facilities.  The Company through its wholly owned subsidiary, Kraft Elektronikai Zrt (“Kraft”), is presently engaged in the design, development and construction on behalf of its customers of both photovoltaic manufacturing equipment and both alone and sometimes through strategic partners of “turnkey” manufacturing plants that produce photovoltaic thin film modules.  The Company expects the primary use of such photovoltaic thin film modules will be the construction of solar power plants by corporations and governments.

On April 3, 2009, the Company and Kraft entered into a restated share exchange agreement with Buda Solar Technologies Co. Ltd. (“Buda Solar”) and its shareholders.  Under the terms of such agreement, subject to the satisfaction of certain closing conditions, Kraft will acquire 100% of the share capital of Buda Solar and will issue to the stockholders of Buda Solar 49% of the share capital of Kraft.  As a result, the Company will own 51% of Kraft and our 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of Buda Solar.  Buda Solar is engaged in the providing technical and installation services for the production and installation of thin film a-Si solar module manufacturing equipment.  Consummation of the Buda Solar transaction is scheduled to occur in June 2009.

Effective as of October 30, 2008, the Company entered into a stock exchange agreement with Algatec Solar AG and its shareholders.  Algatec produces, sells and distributes metallurgical and other types of crystalline silicon solar panels or modules.  For a description of the terms of this agreement, see “Description of our Business –Algatec-Potentialmanufacture of crystalline silicon solar modules” in this Form 10-K.

The Company, in the future, may further vertically integrate itself within this industry through activities in, but not limited to, investing in and/or operating the module manufacturing plants, selling thin film photovoltaic modules, and installing and/or managing solar power plants. The Company also intends, directly and through joint ventures or strategic alliances with other companies or governmental agencies, to sell equipment for and participate financially in solar power facilities using thin film a-Si solar modules or metallurgical and other crystalline solar modules as the power source to provide electricity to municipalities, businesses and consumers.

Consummation of both the Buda Solar and Algatec acquisitions as well as all other expansion plans of the Company are subject to its ability to solve its significant working capital shortages; make payment or other arrangements for the resolution of approximately $2.9 million of indebtedness (approximately $1.75 million of which became in default in March 2009) and other accrued accounts payable, all of which are overdue.  In the event that the Company is unable to resolve these matters within the next 90 days, it may be unable to continue in business and/or may be required to seek protection from its creditors under the Federal Bankruptcy Act.

Kraft and Buda Solar are each Hungarian corporations and their headquarters are located in Budapest, Hungary.  Algatec is a German corporation and its headquarters are located in Proesen, Germany.  Solar Thin Films is a Delaware corporation and its headquarters are located at 25 Highland Boulevard, Dix Hills, New York 11746. Solar Thin Films website is located at www.solarthinfilms.com.

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Solar Thin Films History

The Company was initially organized as a New York corporation on June 22, 1988 under the name Alrom Corp. ("Alrom"), and completed an initial public offering of securities in August 1990. Alrom effected a statutory merger in December 1991, pursuant to which Alrom was reincorporated in the State of Delaware under the name American United Global, Inc. Prior to the acquisition of Kraft, the Company intended to focus its business strategy on acquisitions of operating businesses in various sectors. On June 14, 2006, in connection with its business strategy, the Company closed on the acquisition of 95.5% of the outstanding securities of Kraft. In additional, the Company acquired the remaining 4.5% minority interest in August 2007 and, as a result, now conducts its operations via Kraft, the wholly-owned subsidiary.

Kraft History

Kraft was founded in 1993, shortly after the breakup of the communist economy in Hungary. Its founding members were associated with the Hungarian Central Research Institute for Physics. In 1996, Kraft was contracted to develop thin-film photovoltaic deposition equipment for production of amorphous silicon based thin-film modules, as well as complete turnkey facilities. Photovoltaics (PV) is the physical phenomenon, which allows certain semiconductor materials to directly convert sunlight into electricity.

In the subsequent years, Kraft has manufactured equipment for such facilities in New Jersey, Germany, Hungary, China, Taiwan and Greece. In producing equipment for these facilities, Kraft developed substantial equipment manufacturing expertise. More recently as a supplier to RESI for the CG Solar project in Weihai, China Kraft developed additional process expertise required to allow it to become a leading manufacturer of “turnkey” plants, including the delivery of both equipment and services, that produce photovoltaics modules utilizing thin-film technology. Kraft is now using this expertise to deliver its first "turnkey" plant in Spain commencing in December 2008 and continuing through 2009.

Description of Our Business

Amorphous Silicon Solar Module Manufacturing Equipment

Kraft is engaged in the design, development, manufacture and installation of thin-film amorphous silicon (“a-Si”) photovoltaic manufacturing equipment used in plants that produce photovoltaic thin-film a-Si solar panels or modules. The primary customers of photovoltaic thin-film manufacturing equipment are businesses, as well as governments and government agencies throughout the world engaged in the production of photovoltaic thin-film modules or solar panels and in the development and construction of solar power plants.  The photovoltaic manufacturing equipment deposits a-Si as the active layer in the production of photovoltaic thin-film modules or “solar panels” and is one of the least expensive technologies currently available for the production of commercial solar panels.  We believe that customers using its technology and equipment can achieve a direct cost of power produced from a-Si solar modules of less than $1.00 per Watt of capacity.

In October 2008, the Company and Kraft entered into an agreement (which was amended and restated in April 2009) to acquire Buda Solar Technologies Co. Ltd., a corporation formed in 2007 and engaged in the development of a-Si technology and integrated systems using photovoltaic manufacturing equipment.  The Buda Solar employees and operations are currently being conducted at Kraft’s facility in Budapest, Hungary and at the Buda Solar facility located within the Institute of Physics Management in Budapest.  If the Buda Solar acquisition is completed, Kraft intends to further consolidate the Buda Solar operations either at one of the existing locations or a new location, but will maintain space within the Institute to retain access to critical research and development equipment and to maintain a relationship with the Institute.

Historically, Kraft has provided equipment that is incorporated into a single manufacturing line capable of annually manufacturing a-Si solar modules that produce approximately 5MW of solar power annually.  Since signing a Cooperation Agreement with BudaSolar in October of 2008 Kraft has been able with Buda’s assistance to improve the throughput of a single line to 6MW as well as make other qualitative improvements in its offering. Management further believes that the core group of physicists, chemists and engineers currently employed by Buda Solar will provide Kraft with the additional systems integration capabilities necessary to continuously improve its product offering, scale its production capacity and meet customer demand and operating requirements.  Kraft believes that its consolidation with Buda Solar will accelerate its transition from an equipment vendor to an integrated supplier providing its customers with higher margin “turnkey” production facilities incorporating multiple solar module equipment lines.  As a result of its working relationship with Buda Solar, Kraft has recently been able to announce the availability of new semi-automated “turnkey” lines of solar module equipment with the capacity of annually manufacturing a-Si solar modules that generate from 18MW to 36 MW of solar power.

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Under the terms of a separate agreement with Buda Solar, Kraft has contracted to purchase from Buda Solar certain technical services on a consulting basis for a fee of $250,000 per month.  A total of $750,000 has been paid as of March 31, 2009.

Pricing Factors; Backlog and Order Pipeline

Based on currently available market information, a-Si solar module manufacturing equipment is currently available at costs averaging $2.00 for each peak Watt of “production capacity.”  Production capacity is the cumulative rated capacity of a-Si solar modules that can be produced annually using such equipment.  Accordingly, a “6 MW (1,000,000 Watts) equipment facility” consists of a single line of manufacturing equipment that is capable of producing on an annual basis a-Si solar modules with a cumulated rated capacity of 6MW (6,000,000 Watts) of solar power.  The Company believes that the current market price for a-Si solar modules has fallen from between $2.50 and $3.00 per Watt of rated capacity, or approximately $15.0 to $18.0 million of a-Si solar module sales output from a 6 MW facility to $2.00 or less per Watt of rated capacity, or roughly $12 million for a 6 MW facility, and $36.0 million and $72.0 million of a-Si solar module sales output from its semi-automated 18 MW and  36 MW “turn-key” facilities,  respectively.  The current cost of manufacture of a-Si solar modules using the Company’s equipment is estimated at approximately $1.50 per Watt or less from our 6MW equipment line, and approximately $1.00 per Watt or less from our 36MW semi-automated “turn-key” facility, costs competitive with any process on the market today. We believe that this will provide a-Si solar module manufacturers with an important competitive advantage given that the anticipated price per Watt for a-Si and other modules is expected to continue to fall below $2.00 per Watt over the next two to three years.

In April 2008, Kraft entered into a purchase agreement with Grupo Solar S.A. of Bejar, Spain to furnish the customer with a turn-key photovoltaic manufacturing equipment production facility in Spain for a contract price payable to Kraft of €7.9 million ($12.3 million at the time of signing of the purchase agreement). Kraft received a contract deposit of approximately $600,000 in June 2008 an another $1,300,000 in November 2008 as a customer advance, and began delivery of the system in December of 2008.  We anticipate that substantially all of the revenues from the Groupo Solar order will be recognized in 2009.  Groupo Solar has also indicated an interest in expanding the facility to 12MW in 2009 which could result in an additional €7.0 million (or $9.25 million at current exchange rates) in equipment orders. Kraft also provided approximately $3.0 million of equipment and services to EPV Solar in 2008, though it anticipates a reduction in equipment business in 2010 as the Company transitions to a supplier of “turnkey” systems.

In addition, both Kraft and Buda Solar have submitted detailed proposals and contracts for additional orders, both single line and multi-line, totaling in the tens of millions of dollars, with companies based in Europe, China and Southeast Asia.   There can be no assurance that any of such additional orders will be obtained on commercially attractive terms, if at all.

The Market

We believe the photovoltaic (or PV) industry is currently growing from infancy to adolescence. The Company believes this growth is aided by the concerns of global warming, governmental incentives, political and institutional involvement, fuel prices and the economics of the PV industry. STF believes the strongest force in causing the move from fossil fuels to PV will be the economics of PV. Since the cost of the PV module represents more that 60% of the cost of installed PV systems, learning to manufacture the lowest cost PV modules will help secure the greatest competitive edge and advantage in the market place.

We believe that there is currently a world-wide shortage of photovoltaic solar modules and demand for solar power currently far exceeds the supply of silicon-based modules.  Thin film a-Si modules are primarily installed on solar “farms” to serve utilities and power projects to provide electricity to a large number of users, whereas metallurgical crystalline modules are more suited to individual commercial and residential uses.  Approximately 20% of the world’s supply of solar modules are of the thin film a-Si type and approximately 80% are crystalline modules.  We believe that, upon completion of its expansion plans, the Company and Kraft will be significant suppliers of both crystalline silicon solar modules and thin-film amorphous silicon solar modules.

The market presently consists substantially of modules produced using crystalline silicon. Most of the thin-films that have been produced, until now, use amorphous silicon on a glass substrate. The costs of the thin-film based modules are less than half of those for crystalline silicon. Based on the economic pressures caused by this major cost difference, STF believes that the ratio of crystalline to thin-film in the product mix will substantially shift in the next decade, driving rapid increases in the market for “thin film” PV products. The Company further believes that it can continue to drive costs down through further process improvements to existing technology (amorphous silicon) and through the introduction of newer technologies, possibly including CIGS.

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Our Growth Strategy

The Company’s strategy is to market complete turnkey manufacturing equipment to manufacture thin-film based PV modules where possible, while offering individual pieces of equipment to companies possessing their own internal process knowledge. The Company’s main focus will be the delivery of “turnkey” amorphous silicon production lines, and in the future “turn-key” production lines based on newer materials. Customers include companies with manufacturing expertise and local knowledge, but often without the technology base required to build and manage their own production lines.

Alone, and sometimes together with strategic partners, we offer a “turnkey” amorphous silicon manufacturing facility that is sold installed and with certain guarantees regarding throughput, module efficiency, and therefor by implication, manufacturing cost. Such “turnkey” facilities consists of all the hardware and machinery manufactured, assembled, and installed by the Company together with all the software, know-how and training associated with the manufacturing process.

On a case-by-case basis and subject to financing we will also consider investing in our clients “turn-key” production lines as an equity partner and may secure distribution and/or purchase rights for modules for resale or for use in power projects.

The Company will also continue to sell individual pieces of equipment including, without limitation, deposition lines, sputtering equipment, laminators, IV testers and transport equipment, to customers with their own technology expertise or as add-ons for existing “turn-key” customers.

We are seeking to transition our equipment business from an equipment supplier to a higher margin “turnkey” system supplier, in which we can provide significantly more value added to our customers base. In addition to continuing to provide entry level 6MW systems that provide customers with a low risk cost effective way of entering the photovoltaic business, we believe that the Buda Solar acquisition will enable us to be capable of providing semi-automated 18MW and 36MW facilities, which enables its existing and potential customer base to scale more rapidly while further reducing the cost of production.

In addition to Kraft’s acquisition of Buda Solar, the Company intends to enter the business of producing, selling and distributing metallurgical and other types of crystalline silicon solar panels or modules through its acquisition of Algatec. We believe that the contemplated acquisition of Algatec will enable the Company and its subsidiaries to provide both a-Si equipment and turn-key manufacturing facilities to a-Si solar module producers, as well as becoming a vendor of choice for the assembly of metallurgic crystalline silicon solar modules and in some cases a direct supplier of metallurgical crystalline solar modules.  In addition, Solar Thin Films may seek to enter into joint ventures with third parties, including utilities, to establish fully integrated power systems or power projects using either of its low cost technologies.  The Company or its subsidiaries may also seek arrangements with certain of its module manufacturing customers to purchase low cost a-Si modules (the output of the equipment provided by Kraft and Buda Solar) for use in power projects in Europe, North America and Asia.  Together with its planned acquisition of Algatec this will provide the Company and its subsidiaries with access to both metallurgical crystalline silicon and amorphous silicon modules at attractive costs in order to pursue plans to enter into strategic arrangements to provide electricity from solar power in fully integrated power systems or power projects.

Joint Venture

In 2008, Solar Thin Films entered into a joint venture agreement with Blue Star Glass Company (a company organized under the laws of the People’s Republic of China) and China Singyes Curtain Wall Company (a Hong Kong corporation) to form CG Solar Company Ltd.   The joint venture company was formed for the purpose of establishing a photovoltaic manufacturing equipment facility to produce thin film a-Si solar modules in Weihai, Shandong Province, China.  The joint venture company currently operates a 2.5 MW a-Si module manufacturing facility constructed with equipment delivered by the Company, with plans to further expand the operation. The current site has buildings with capacity for over 100 MW of production. Under the terms of such joint venture, Solar Thin Power, Inc., a majority owned subsidiary of Solar Thin Films currently owns 15% of the equity of CG Solar Company Limited and has agreed to acquire an additional 5% interest from its prior technology partner RESI.

Competition - Thin Films

Crystalline silicon PV technologies currently represent roughly 80% of the PV market. Demand for crystalline (and poly-crystalline) silicon has grown very rapidly over the past decade, but photovoltaic module costs have remained relatively unchanged due to cost realities of the crystalline production process. As such, while prices have fallen recently due to increased supply from Asia and reduced demand due to the credit crisis the differential in costs is expected to provide a significant opportunity for profit to “thin film” module and equipment producers, placing the Company in an attractive position.

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However, there are an increasing number of competitors for the Company in this market, and through well funded research and development activities, these competitors have developed their own pilot lines for thin-films PV module manufacturing and are introducing both modules and equipment into the marketplace. Competitors will consist of 1) companies who build their own PV plants utilizing internal technology and know how - and who may represent customer opportunities for specific pieces of equipment, and 2) companies who manufacture and deliver production equipment to third parties. Many players in this latter market specialize in the sale of individual pieces of equipment rather than “turn-key” production lines, while others compete directly for “turn-key” business.

As an equipment and “turnkey” systems supplier Kraft and Buda Solar compete with a broad range of suppliers into the photovoltaic or “PV” industry. Within the amorphous silicon space two of its largest competitors include Applied Materials and Oerlikon, both of which offer larger scale systems.  Kraft (with BudaSolar) offers several advantages for prospective customers including a lower price point for its entry or single line systems, and a highly cost effective manufacturing design based on its batch process - sometimes called the “box carrier” system - that yields high materials utilization and high finished product yield, and therefor commensurately lower cost. Additionally its process has the further advantage that its systems do not require costly clean rooms, which further raise the cost of equipment and production, allowing  Kraft to price its offering below that of its major competitors. Kraft has historically offered scalable systems starting with a 6MW line available for approximately $2.00 per Watt, providing a much lower cost of entry into the business.

While maintaining the low cost design of the current system, we believe that, with their newer 18 and 36 semi automated systems, Kraft (together with BudaSolar) will be able to offer larger systems capable of meeting customer plans for rapid expansion, and capable of producing a-Si modules for less than $1.00 per Watt.  Indirect competitors, competing within this low cost space, include a-Si module manufacturers like EPV Solar and Cadmium manufacturer First Solar.

Customers

The current customers of Kraft are principally located in the US and most recently Europe, though equipment supplied to such customers has been shipped in some cases to Asia. Prospective customers of Kraft and Buda Solar are located in the US, Europe and Asia. In 2008, our Kraft subsidiary had one key customer, which accounted for approximately 96% of total revenue, though Kraft began shipping to a second significant customer in the fourth quarter of 2008.

Government Regulation

The Company’s operations are subject to local, state and federal laws and regulations governing environmental quality and pollution control. To date, the Company’s compliance with these regulations had no material effect on its operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. STF is unable to assess or predict at this time the effects that additional regulations or legislation could have on the activities.

Seasonality

We do not anticipate that our business will be substantially affected by seasonality.

Employees

As of December 31, 2008, the Company employed 57 full-time and 2 part-time employees, respectively, none of whom is a member of a union or work council. None of our employees are covered by the by collective bargaining agreements. We believe that our relations with our employees are good.

Sales and Project Management

Two members of management and two sales engineers are currently focused on the company’s sales activity including finding and contacting potential customers and managing contracts and bids - for both “turn-key” and equipment sales. In addition the company currently has two project managers, responsible for managing contracts and projects from inception through completion. The sales and project management groups work together with the engineering and equipment manufacturing groups to assure timely production and deliveries.

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Engineering

The Companies engineering department consists of three dedicated mechanical engineers and seven dedicated electrical engineers as well as a number of vacuum and field services engineers. The engineering department works closely with the manufacturing unit to guarantee quality and timely delivery, under the guidance of its project management staff.

Production (Equipment manufacturing)

The largest group in the Company is the production (equipment manufacturing) department, consisting of 33 employees. These people perform the actual assembly of equipment, including activities related to the mechanical, electrical and vacuum system parts of the finished product. The manufacturing activities are actively supported by input from the engineering group.

Algatec - Potential manufacture of crystalline silicon solar modules

The following sets forth a discussion of the business of Algatec, assuming the transactions contemplated by the acquisition will be consummated.  See “Terms of the Algatec Acquisition and Related Party Financing” below.

Algatec is a business that is focused on the development of solar modules.  Specifically, its is engaged in the manufacture, sale and distribution of metallurgical crystalline silicon solar modules at its manufacturing facility located in Prosen, Germany, approximately 80 miles from Dresden, Germany.  For the year ended December 31, 2008, its audited net income was approximately $1.7 million on total revenues of approximately $18.5 million.

Algatec has a significant contractual backlog of orders for 2009.  The current total for 2009 is 85 Megawatts (MW), representing approximately $66.45 million in revenues.  Module quantities are stated in megawatts; 85 MW is approximately 392,000 modules.  Algatec’s principal customer, representing 80 MW of our 2009 backlog, is Q-Cells International GmbH (“Q-Cells”).  In addition to being the world’s largest producer of solar cells, Q-Cells has plans to be a significant generator of electricity, and uses the Algatec modules in power projects worldwide.  Algatec has been an original equipment manufacturer (“OEM”) to Q-Cells since 2006.   Subject to its obtaining the financing required to expand its manufacturing and production capacity, Algatec anticipates that Q-Cells will renew the existing OEM agreement through December 31, 2010 and agree to purchase approximately 120 MW of metallurgical crystalline silicon solar modules in 2010.  Algatec also believes that prior to the end of 2009, Q-Cells will confirm its  2011 purchase commitments for such solar modules under the OEM agreement.  In 2009, substantially all of Algatec’s revenues will be derived under its OEM contract with Q-Cells.  Commencing in 2010, it will seek to obtain orders through direct sales to other power integrators.

Under the terms of its OEM agreement with Q-Cells, Algatec receives metallurgical crystalline cells from Q-Cells.  Using these cells, Algatec manufactures and assembles solar modules that provide at least 15% “efficiency.”  The term efficiency refers to the ability of the module to convert solar energy into electricity.  Under its OEM agreement, Algatec has no monetary outlay for the cells.

Capacity constraints have previously limited Algatec’s ability to meaningfully diversify beyond the Q-Cells OEM business.   Algatec’s current manufacturing capacity is 15 MW per year.  In order to fulfill its contractual order backlog, Algatec intends seek financing of up to $50.0 million to expand its current annual production capabilities to 175 MW.  Algatec recently acquired approximately five acres of land adjacent to our current 15,000 square foot facility, and intends to construct a 125,000 square foot plant addition at an estimated cost of $10.9 million and install five lines of crystalline module production equipment.  Algatec has contracted to purchase from The Komax Group, S.A. and other suppliers the necessary equipment to automatically string and laminate crystalline cells into solar modules.  The estimated total cost of such stringing equipment, laminating equipment to bond cells to solar modules, and ancillary items is approximately $39.2 million

Based upon inquiries from a number of potential customers, Algatec believes that there is significant demand for metallurgical crystalline modules, both in Europe and in many other areas in Asia and North America.  When it has in the past produced modules for customers other than Q-Cells, Algatec purchases the metallurgical crystalline cells from Q-Cells, manufacture the modules, and ships them to the respective client.

In February 2009, Algatec received a proposal from Nord Landesbank for a $24.65 million financing to enable Algatec to purchase for $29.0 million sixteen Xcell 3400 stringing systems from Komax’s United States subsidiary.   Such financing is subject to obtaining a loan guaranty from the Export-Import Bank of the United States (the “Ex-Im Bank”) and Algatec or the Company posting a $4.35 million letter of credit, or 15% of the contracted amount for the equipment.  Although Algatec has applied for the Ex-Im Bank guaranty and believes that it will qualify for such loan guaranty, as at the date of this Form 10-K, such guaranty commitment has not been issued, nor has Algatec or the Company provided the requisite letter of credit.

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In addition to the Nord Landesbank proposed financing, Algatec has received a proposal for a $15.1 million (€11.6 million) five year bank financing from Credit Suisse Bank to enable it to purchase laminating equipment which loan is guaranteed by the Ex-Im Bank, and the balance by the laminator supplier, and a proposal from a German bank for a 20 year construction loan in the amount of $9.1 million (€7.0 million) to enable it to construct its plant addition.

There can be no assurance that any or all of the above proposed financings will be obtained by Algatec.  Consummation of such financings, or one or more alternative financings of up to $50.0 million, is a condition to the Company’s ability to complete the acquisition of Algatec.  See below.

Terms of the Algatec Acquisition and Related Party Financing

On October 20, 2008, Robert M. Rubin, Chairman, Chief Executive Officer and Chief Financial Officer of Solar Thin Films, formed Algatec Equity Partners, L.P., a Delaware limited partnership (the “Partnership”), for the purpose of acquiring up to 49% of the share capital of Algatec.  Effective as October 30, 2008, Algatec and members of Algatec senior management consisting of Messrs. Rainer Ruschke, Ullrich Jank, Dr. Stefan Malik and Andre Freud (collectively, the “Management Stockholders”), and Anderkonto R. Richter, Esq.,as trustee for Mr. Ruschke and another Algatec stockholder (the “Trustee”), entered into a share purchase agreement (the “Algatec Share Purchase Agreement”).  Under the terms of the Algatec Share Purchase Agreement, on November 3, 2008 (the “First Closing”) the Partnership invested an aggregate of $3,513,000, of which approximately €2,476,000 was represented by a contribution to the equity of Algatec to enable it to acquire all of the assets and equity of Trend Capital, the predecessor to Algatec.  The Partnership also purchased for €1.00 per share a total of 13,750 Algatec shares, representing 27.5% of the outstanding share capital of Algatec.

The general partner of the Partnership is Algatec Management LLP, a Delaware limited liability company owned by The Rubin Family Irrevocable Stock Trust and other persons.  Mr. Rubin and Barry Pomerantz, a business associate of Mr. Rubin, are the managers of the general partner.  Under the terms of the limited partnership agreement, the general partner agreed to invest a total of $165,000 in the Partnership in consideration for 5.0% of the assets, profits and losses of the Partnership.  The limited partners, who invested an aggregate of $3,200,000 at the First Closing and additional persons the Partnership will seek to admit as limited partners by the Second Closing, will own 95.0% of the Partnership assets, profits and losses. As part of the First Closing, The Rubin Family Irrevocable Stock Trust invested an additional $1,500,000, as a limited partner, on the same terms as other limited partners of the Partnership.

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In addition to its equity investment, the Partnership has agreed under the terms of a loan agreement entered into at the same time as the Algatec Share Purchase Agreement, to lend to Algatec on or about November 30, 2008 (the “Second Closing”), an additional $2,600,000 or approximately €2,000,000.  The proceeds of the loan was to be used to assist Algatec in paying the balance of the purchase price for all of the assets and equity of the Trend Capital limited partnership.  Upon funding of the loan, the Partnership would purchase for €9,250 an additional 9,250 shares, representing 21.5% of the outstanding share capital of Algatec, thereby increasing its ownership to an aggregate of 49% of the outstanding share capital of Algatec.  The loan, together with interest at the rate of 6% per annum, is repayable on the earlier of December 31, 2012 or the completion of one or more financings providing Algatec with up to $50.0 million of proceeds for expansion (the “Algatec Financing”).  Upon the Partnership funding the entire €2,000,000 loan at the Second Closing, the Management Group would own the remaining 51% of the share capital of Algatec.  If the Partnership funds less than the full €2,000,000 loan, the additional 21.5% equity to be issued to the Partnership at the Second Closing was to have been appropriately pro-rated.  On December 29, 2008, the Partnership consummated the Second Closing with Algatec and funded a loan of €2,000,000 ($2.6 million) as a result of which the Partnership’s total equity ownership in Algatec was fixed at 49% of the total number of outstanding Algatec shares.

Effective as of October 30, 2008, the Trustee, the Management Group and the Partnership (collectively, the “Algatec Stockholders”) and Algatec entered into a stock exchange agreement. Under the terms of the stock exchange agreement the Algatec stockholders agreed, subject to certain conditions, to exchange 100% of the share capital of Algatec for shares of our newly authorized Series B-5 convertible preferred stock.  The Series B-5 preferred stock is convertible at any time into that number of shares of our common stock as shall represent 60% of our “Fully-Diluted Common Stock” (as defined).  The term “Fully-Diluted Common Stock” means the aggregate number of shares of Company common stock issued and outstanding as at the date of closing of the share exchange, after giving pro-forma effect to the sale or issuance of any shares of common stock (a) that were issued at any time following the October 30, 2008 date of execution of the stock exchange agreement and prior to consummation of the Algatec acquisition, (b) that are issuable upon conversion of any Company convertible securities or upon the exercise of any warrants that were issued at any time between October 31, 2008 and consummation of the Algatec acquisition, and (c) that are issuable upon full conversion of the Series B-5 preferred stock.  However, the Algatec stockholders shall be subject to pro-rata dilution resulting from the issuance of (i) approximately 19.6 million shares of Company common stock issuable upon conversion of convertible notes or the exercise of options and warrants that were outstanding as at October 30, 2008, (ii) any shares of Company common stock issued in connection with providing financing for Algatec (as described below), or (iii) any shares of Company common stock issued or issuable after completion of the Algatec acquisition.  Consummation of the Algatec acquisition is subject to certain conditions, including Algatec obtaining up to $50.0 million of the Algatec Financing to enable it to construct the addition to its existing manufacturing facility and purchase the necessary equipment to expand its business and meet contractual obligations to Q-Cells and other customers, as described above.

On April 10, 2009, the parties agreed to extend the anticipated closing date of the transactions contemplated by the Stock Exchange Agreement to July 15, 2009.

There can be no assurance that the necessary Algatec Financing will be obtained or that the proposed Algatec acquisition will be consummated.

Under the terms of the Stock Exchange Agreement, each of Messrs. Ruschke, Malik, Jank and Freud will enter into five year employment agreements with Algatec pursuant to which Mr. Ruschke will receive an annual salary of €180,000 (approximately USD $246,600) and each of Messrs. Malik, Jank and Freud will receive annual salaries of €100,000 (approximately USD $137,000), subject to 5% annual cost-of-living increases.  In addition, such executives shall be entitled to receive annual bonuses equal to 10% of the annual net income before interest and taxes of Algatec (“EBIT”) for each of the five years, subject to an annual “cap” on such bonuses that will not exceed 100% of their annual salaries if annual EBIT is €10.0 million or less in any of the five fiscal years, and 200% of their annual salaries if such annual EBIT is more than €10.0 million in any of the five fiscal years.  Each of Messrs. Ruschke, Malik, Jank and Freud have also agreed, for a period equal to the greater of five years or the term of their individual employment with Algatec, not to compete with the “business” of the Company (defined as (i) the manufacture and sale of photovoltaic module equipment of all types, (ii) the installation of turn-key module manufacturing facilities of all types; (iii) the manufacture and sale of photovoltaic cells or modules of all types; and (iv) the installation and operation of power projects, including the supplying of solar power electricity to private industry, consumers or local or foreign governments and municipalities).

If the Algatec acquisition is consummated, the board of directors of our Company will be expanded to seven persons, of which three members of the board of directors shall be represented by the Management Stockholders.  Messrs. Ruschke, Malik and Jank have agreed to serve on our board of directors.

Solar Thin Power

In 2007, the Company formed Solar Thin Power, Inc. under the laws of the State of Delaware.  Solar Thin Power was to engage in power projects.  It currently owns a 15% interest in CG Solar Company Limited, the Company’s joint venture in China (and has agreed to purchase another 5%), and is in preliminary discussions with other prospective joint venture partners with respect to marketing and financing of various power projects.

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In 2007 and 2008, Solar Thin Power received an aggregate of $3,498,396 of financing from ten unaffiliated investors who purchased common stock of Solar Thin Power at $0.50 per share.  Approximately $1,500,000 of the proceeds of such financing used by Solar Thin Power to acquire a 20% minority interest in a thin film a-Si solar module manufacturing facility in China and the balance of such proceeds were loaned to Solar Thin Films for working capital.  Under the terms of the transaction, if Solar Thin Power was not a publicly traded corporation by June 2009, the investors in Solar Power have the right to require Solar Thin Films to repurchase half of their portion of their minority equity in Solar Power for $1,767,500.

As at December 31, 2008, an aggregate of 67,570,000 shares of Solar Thin Power were issued and outstanding, of which Solar Thin Film owned 44,000,000 or 65.12% the outstanding shares of Solar Thin Power common stock.  In April 2009, Solar Thin Films agreed to transfer 2,000,000 of its Solar Thin Power shares to Strategic Growth International Inc. in lieu of cash compensation payable under a one year investor relations agreement expiring March 31, 2010.  In addition, Solar Thin Power agreed to issue three year warrants to purchase an additional 2,000,000 shares of Solar Thin Power to Strategic Growth International at an exercise price of $0.20 per share.

As a result of the foregoing transactions, as of April 15, 2009, Solar Thin Films owns an aggregate of 33,900,000 shares of Solar Thin Power common stock, and stockholders of Solar Thin Power, other than Solar Thin Films, currently own an aggregate of 25,570,000 shares of the 59,470,000 outstanding shares of Solar Thin Power common stock, and Strategic Growth International holds warrants to purchase an additional 2,000,000 shares of Solar Thin Power.  Peter C. Lewis, Group Vice President and General Manager of the Thin Film Group and former Chief Executive Officer and President of Solar Thin Films owns 3,000,000 shares of Solar Thin Power and The Rubin Family Stock Trust owns 3,000,000 shares of Solar Thin Power.

Item 1A. Risk Factors.

You should carefully consider the risks described below in conjunction with our  forward looking statement related risks as set forth in the beginning of this report, as well as the other information in this report, when evaluating our business and future prospects. Should any of the following risks actually occur, our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline and investors could lose all or a portion of the value of their investment in our common stock.

Risks Related to Our Financial Condition

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

Our consolidated financial statements as of December 31, 2008 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm issued a report that was included in this annual report which included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have a significant working capital shortage; are currently in default in payment of approximately $1.75 million of indebtedness which became due in March 2009, and may face litigation or even bankruptcy if we are unable to meet our obligations.

As at December 31, 2008, the Company’s consolidated current liabilities exceeded its consolidated current assets by $7,261,614.   The Company is currently in default in the payment of notes aggregating $1.75 million which became due in March 2009, and outstanding accounts payable of approximately $4.0 million are also past due, unless the Company is able to obtain additional capital or other financing within the next 60 to 90 days, or sooner, its creditors may sue to collect on their notes and accounts, which action may accelerate the due date of the Company’s other indebtedness aggregating approximately $1.2 million that is not currently in default.  In such event, the Company may be required to seek protection from its creditors under the Federal Bankruptcy Act.  Although the Company is actively pursuing such financing, there is no assurance that it will be obtained on commercially reasonable terms, if at all.  Even if such financing is obtainable, it may be expected that the terms thereof will significantly dilute the equity interests of existing stockholders of the Company.

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Our existing and potential subsidiaries need to raise significant additional capital which may not be available on acceptable terms or at all.

In addition to the indebtedness and other obligations of Solar Thin Films, our Kraft subsidiary requires additional capital to meet its expansion plans and may require approximately $1.1 million to consummate the proposed Buda Solar acquisition.  In addition, in order to consummate the proposed Algatec acquisition, the Company must assist Algatec in obtaining up to $50.0 million of expansion financing.  Although the Company and Algatec are considering various debt financing proposals, there is no assurance that such additional financing will be obtained on commercially reasonable terms, if at all.

If adequate funding is not available on acceptable terms, Kraft may be unable to develop or enhance its products or take advantage of its acquisition opportunities, either of which could have a material adverse effect on the Company's business, results of operations and financial condition and may reduce our ability to continue to conduct business operations. Any additional equity or equity-type financing (including the issuance of convertible securities or warrants) will likely involve substantial dilution to our then existing shareholders

We have a history of losses, expect to incur substantial further losses and may not achieve or maintain profitability in the future, which may decrease the market value of our stock.

The Company has reported a net loss from operations of $6,974,675 for the year ended December 31, 2008 and a net loss from operations of $3,824,645 for the year ended December 31, 2007.

The Company has suffered operating losses and negative cash flows from operations since inception and, at December 31, 2008, the Company had an accumulated deficit of $32,549,564. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. If revenues grow more slowly than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, we will continue to incur losses. We will continue to incur losses until we are able to establish significant sales. Our possible success is dependent upon the successful development and marketing of our products, as to which there is no assurance. Any future success that we might enjoy will depend upon many factors, including factors out of our control or which cannot be predicted at this time. These factors may include changes in or increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs, including costs of supplies, personnel, marketing and promotions, reduced margins caused by competitive pressures and other factors. These conditions may have a materially adverse effect upon us or may force us to reduce or curtail operations. In addition, we will require additional funds to sustain and expand our sales and marketing activities, particularly if a well-financed competitor emerges. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain sufficient funds from operations or external sources would require us to curtail or cease operations.

Our revenues and operating results are likely to fluctuate significantly.

As a result of our limited operating history and the rapidly changing nature of the markets in which the Company competes, our quarterly and annual revenues and operating results are likely to fluctuate from period to period. These fluctuations may be caused by a number of factors, many of which are beyond our control. These factors include the following, as well as others discussed elsewhere in this section:

· how and when we introduce new products and services and enhance our existing products and services;

· our ability to attract and retain new customers and satisfy our customers' demands;

· the timing and success of our brand-building and marketing campaigns;

· our ability to establish and maintain strategic relationships;

· our ability to attract, train and retain key personnel;

· the emergence and success of new and existing competition;

· varying operating costs and capital expenditures related to the expansion of our business operations and infrastructure, domestically and internationally, including the hiring of new employees;

· changes in the mix of products and services that we sell to our customers;

· costs and effects related to the acquisition of businesses or technology and related integration; and

· costs of litigation and intellectual property protection.

In addition, because the market for our products and services is relatively new and rapidly changing, it is difficult to predict future financial results.

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For these reasons, you should not rely on period-to-period comparisons of our financial results, if any, as indications of future results. Our future operating results could fall below the expectations of public market analysts or investors and significantly reduce the market price of our common stock. Fluctuations in our operating results will likely increase the volatility of our stock price.

Risks Related to our Current Business Operations

Kraft has generated limited revenues and it may never achieve profitability.

To date, the Company, through its Kraft subsidiary, has generated limited revenues of $3,436,779 and $5,779,578 for the years ended December 31, 2008 and December 31, 2007, respectively, and the Company incurred losses from operations of $6,974,675 and $3,824,645, respectively. Kraft’s future existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. We cannot assure you that the Company can achieve or sustain profitability in the future. Kraft’s operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether our PV manufacturing facilities development will achieve market acceptance. The Company may not achieve its business objectives and the failure to achieve such goals would have an adverse impact on Kraft. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Our equipment business is small and projected revenues may not materialize.

Since its inception, our thin film amorphous silicon equipment business located in Hungary has only delivered $11,643,311 of equipment to customers and has never sold more than $5,000,000 of equipment in any one year.  Our ability to achieve or even approach our sales and profit projections are subject to a number of factors, some of which are beyond our control.. Such factors include, without limitation:

· entering into definitive agreements with financially credible customers that provide for adequate profit margins;

· our obtaining meaningful down payments to provide sufficient cash flow to enable Kraft to purchase necessary components and pay labor costs;

· significantly increasing our personnel and infrastructure;

· our having or obtaining sufficient manufacturing capacity;

· our ability to meet contracted for delivery schedules; and

· our ability to obtain and post completion bonds or other guarantees, if required by certain customers.

Kraft is dependent on a only a few customers and any loss of these customers will have a negative impact on our operations. 

For the year ended December 31, 2008, Kraft derived approximately 96% of its total revenues from one key customer. A loss of this relationship, for any reason could cause the Company to experience difficulties in obtaining revenue and implementing its business strategy. There can be no assurance that the Company could establish other relationships of adequate revenue in a timely manner or at all. In the event that STF is not able to significantly increase the number of customers or vendors that purchase its products its financial condition and results of operations will be materially and adversely affected.

Evaluating our business and future prospects may be difficult due to the rapidly changing market landscape.

There is limited historical information available about our company upon which you can base your evaluation of our business and prospects. Although Kraft was formed in 1993 for the development of vacuum based technologies it has only recently developed four turnkey PV module manufacturing facilities pursuant to which it has only recognized limited revenues.

The market we are addressing is rapidly evolving and is experiencing technological advances and new market entrants. Our future success will require us to scale our manufacturing capacity significantly beyond the capacity of our Budapest, Hungary manufacturing facility, and our business model and technology are unproven at significant scale. Moreover, Kraft’s strategic partnerships with Buda Solar and Algatec, are only in the early stages of development and have not been officially agreed to and formalized. Kraft has limited experience upon which to predict whether it will be successful. As a result, you should consider its business and prospects in light of the risks, expenses and challenges that we will face as an early-stage company seeking to develop and manufacture new products in a growing and rapidly evolving market.

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Our future success substantially depends on our ability to significantly increase our manufacturing capacity through the development of additional manufacturing facilities. We may be unable to achieve our capacity expansion goals as a result of a number of risks, which would limit our growth potential, impair our operating results and financial condition and cause our stock price to decline.

Our future success depends on our ability to increase our manufacturing capacity through the development of additional manufacturing facilities. If we are unable to do so, we may not be able to achieve the production volumes and per unit costs that will allow us to meet customer demand, maintain our competitive position and achieve profitability. Our ability to develop additional manufacturing facilities is subject to significant risk and uncertainty, including:

· we may need to continue to raise significant additional capital through the issuance of equity or convertible or debt securities in order to finance the costs of development of any additional facility, which we may be unable to do on reasonable terms or at all, and which could be dilutive to our existing stockholders;

· the build-out of any additional facilities will be subject to the risks inherent in the development of a new manufacturing facility, including risks of delays and cost overruns as a result of a number of factors, many of which may be out of our control, such as delays in government approvals or problems with supplier relationships;

· our manufacturing processes, particularly those for the development of the equipment used in the turnkey PV manufacturing facilities, are unproven at large scale and may prove difficult to implement in any new facility; and

· if a new facility is established internationally, we may encounter legal restrictions and liability, encounter commercial restrictions and incur taxes and other expenses to do so and otherwise be subject to the risks inherent in conducting business in a foreign jurisdiction as described elsewhere in this section.

If we are unable to develop and successfully operate additional manufacturing facilities, or if we encounter any of the risks described above, we may be unable to scale our business to the extent necessary to achieve profitability, which would cause our stock price to decline. Moreover, there can be no assurance that if we do expand our manufacturing capacity that we will be able to generate customer demand for our turnkey PV manufacturing facilities at these production levels or that we will increase our revenues or achieve profitability.

Our “turnkey” manufacturing facility may not gain market acceptance, which would prevent us from achieving increased sales and market share.

The development of a successful market for turnkey manufacturing facility may be adversely affected by a number of factors, many of which are beyond our control, including, without limitation:

· our ability to market our services together with our equipment;

· our failure to produce a turnkey facility that competes favorably against companies electing to develop these facilities internally;

· our failure to produce a turnkey facility that produces PV modules that compete favorably against conventional energy sources and alternative distributed generation technologies, such as wind and biomass, on the basis of cost, quality and performance; and

· our failure to develop and maintain successful relationships with strategic partners, including, Buda Solar and Algatec.

If our “turnkey” facilities or the PV solar modules produced by our facilities fail to gain market acceptance, we would be unable to increase our sales and market share and to achieve and sustain profitability.

Technological changes in the solar power industry could render our turnkey manufacturing facilities uncompetitive or obsolete, which could reduce our market share and cause our sales to decline.

Our failure to further refine our technology and develop and introduce the next generation of our turnkey facility could cause our products to become uncompetitive or obsolete, which could reduce our market share and cause our sales to decline. The solar power industry is rapidly evolving and competitive. We will need to invest significant financial resources in research and development to keep pace with technological advances in the solar power industry and to effectively compete in the future. We believe that a variety of competing solar power technologies are under development by other companies that could result in lower manufacturing costs or higher product performance than those expected to be produced utilizing our turnkey facilities. Our development efforts may be rendered obsolete by the technological advances of others and other technologies may prove more advantageous for the commercialization of solar power products.

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We face risks associated with the marketing, development and sale of our turnkey facilities internationally, and if we are unable to effectively manage these risks, it could impair our ability to expand our business abroad.

To date, Kraft has delivered equipment for facilities in New Jersey, Germany, Portugal, China, Taiwan and Greece and is now delivering a “turnkey” system in Spain. Going forward we expect to seek to develop turnkey facilities on an international basis. It will require significant management attention and financial resources to successfully develop our international sales channels either internally (with BudaSolar) or through outside agents. In addition, the marketing, development and sale of our turnkey facilities internationally could expose us to a number of markets with which we have limited experience. If we are unable to effectively manage these risks, it could impair our ability to grow our business abroad. These risks include:

· difficult and expensive compliance with the commercial and legal requirements of international markets, with which we have only limited experience;

· inability to obtain, maintain or enforce intellectual property rights;

· encountering trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could affect the competitive pricing of our turnkey facilities;

· fluctuations in currency exchange rates relative to the United States dollar and the Hungarian florint;

· difficulty in recruiting and retaining individuals skilled in international business operations; and

· difficulty of enforcing revenue collection internationally.

We expect that a portion of our international sales will be denominated in United States dollars. As a result, increases in the value of the United States dollar relative to foreign currencies would cause our products to become less competitive in international markets and could result in limited, if any, sales and profitability.

Furthermore, in the development of our facilities in foreign markets, we may encounter legal restrictions, commercial restrictions and incur taxes and other expenses to establish our manufacturing facilities in certain countries. In addition, we may potentially forfeit, voluntarily or involuntarily, foreign assets due to economic or political instability in the countries where our local manufacturing facilities are located.

We may not be able to successfully develop and commercialize our turnkey PV manufacturing facilities which would result in continued losses and may require us to curtail or cease.

While we have made progress in the development of our PV manufacturing facilities, we have generated limited revenues and we are unable to project when we will achieve profitability, if at all. As is the case with any new technology, we expect the development process to continue. We cannot assure that our engineering resources will be able to modify the product fast enough to meet market requirements. We can also not assure that our product will gain market acceptance and that we will be able to successfully commercialize the technologies. The failure to successfully develop and commercialize the technologies passed its current stage would result in continued losses and may require us to curtail or cease operations.

Our fixed-price contracts could subject us to losses in the event that we have cost overruns.

Substantially all of our agreements with customers are based upon fixed-price contracts.  In a fixed-price contract, the price is not subject to adjustment based on cost incurred to perform the required work under the contract. Therefore, we fully absorb cost overruns on fixed-price contracts, thereby reducing our profit margin.  Further risks associated with fixed-price contracts include the difficulty of estimating costs that are related to performance in accordance with contract specifications and the possibility of obsolescence in connection with long-term procurements.  We may not be able to accurately estimate the costs of the components and materials that we use to manufacture our products, because their prices have been, and we expect them to continue to be, subject to volatility. Also, any failure to anticipate technical problems, estimate costs accurately or control costs during performance of a contract can reduce our profitability. Under fixed-price contracts, we may not be able to pass price and cost increases on to our customers, which could have an adverse effect on our financial results.

We have a few proprietary rights, the lack of which may make it easier for our competitors to compete against us.

We attempt to protect our limited proprietary property through copyright, trademark, trade secret, nondisclosure and confidentiality measures. Such protections, however, may not preclude competitors from developing similar technologies. Any inability to adequately protect our proprietary technology could harm our ability to compete.

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Our future success and ability to compete depends in part upon our proprietary technology and our trademarks, which we attempt to protect with a combination of patent, copyright, trademark and trade secret laws, as well as with our confidentiality procedures and contractual provisions. These legal protections afford only limited protection and are time-consuming and expensive to obtain and/or maintain. Further, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We depend on the services of key executives and technical and other personnel, the loss of whom could materially harm our business or reduce our operational effectiveness.

Some of our senior executives are important to our success because they have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, identifying opportunities and arranging necessary financing. We are highly dependent on our management, in particular, Peter Lewis, the Group Vice President and General Manager of the Thin Film Group, and Robert Rubin, the Chief Executive Officer and Chief Financial Officer, and consultants who are all critical to the development of our financing arrangements, technologies and business. Losing the services of any of these individuals, including, without limitation, Peter Lewis or Robert Rubin, could adversely affect our business until a suitable replacement could be found. If we were to lose any one of these individuals, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies or financing arrangements. We believe that they could not quickly be replaced with executives of equal experience and capabilities. We do not maintain key person life insurance policies on any of our executives. The employment agreement entered with Mr. Lewis and our company (as amended on April 7, 2009) is for a term of three years through June 2010. The agreements entered between our company and Rubin expire in June 2009.

There is a continuing demand for qualified technical personnel, and we believe that our future growth and success will depend upon our ability to attract, train and retain such personnel.  Competition for personnel in our industry is intense, and there is a limited number of persons with knowledge of, and experience in, this industry. Although we currently experience relatively low rates of turnover for our technical personnel, the rate of turnover may increase in the future. During surge production periods, we rely on a substantial number of temporary employees. An inability to attract or maintain a sufficient number of technical or temporary personnel could have a material adverse effect on our contract performance or on our ability to capitalize on market opportunities.

We do not maintain theft or casualty insurance and only maintain modest liability and property insurance coverage and therefore we could incur losses as a result of an uninsured loss.

We do not maintain theft or casualty insurance and we have modest liability and property insurance coverage. We cannot assure that we will not incur uninsured liabilities and losses as a result of the conduct of our business. Any such uninsured or insured loss or liability could have a material adverse affect on our results of operations.

Risks Related to our Proposed Business Operations

Substantially all of Algatec's existing and projected 2009 revenues are derived from its OEM contract with Q-Cells, which contract will expire at the end of 2009; there can be no assurance that Q-Cells will renew such contract beyond such date or on financially acceptable terms.  A loss of the OEM contract with Q-Cells or a reduction of sales or profit margins under such OEM contract would have a material adverse effect on Algatec’s business.

Algatec derived approximately 60% of its 2008 revenues from its OEM contract with Q-Cells and anticipates that a significant portion of its projected 2009 revenues will be derived under such contract that currently expires on December 31, 2009.  Although Algatec has received an agreement in principle with Q-Cells to extend such agreement through 2010 and anticipate signed such extension in January 2009, even if extended, the Q-Cells contract will then expire on December 31, 2010.  Although Algatec believes that Q-Cells will negotiate a contract extension beyond 2010 with revised pricing and other terms prior to such anticipated December 31, 2010 expiration date, there can be no assurance Q-cells will renew such contract beyond 2010 or, even if renewed, that such renewed contract will be on financially attractive terms.  Even if renewed for 2011 and beyond, a reduction in the annual sales revenues or profit margins under such OEM contract would have a material adverse effect on our business, results of operations and cash flow.  A termination of such OEM contract in the near term would have a material adverse effect to our business, results of operations, cash flow and ability to make principal installment payments under the notes.

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Algatec's inability to perform under its Q-Cells OEM contract would have a material adverse effect on our consolidated business and prospects.

A failure to meet perform or otherwise meet delivery schedules to Q-Cells or other customers in accordance with contractual requirements, would have a material adverse effect on our reputation and future sales and business prospects.  Each of such contracts obligates Algatec to meet certain delivery schedules, and furnish equipment that performs within agreed upon product specifications.  A default or other failure to perform obligations under such contracts, could result in Algatec incurring substantial financial losses and subject them to liabilities to their customers.

Prices of metallurgical crystalline cells and other components may increase causing our profit margins to decrease

Upon completion of its fixed asset additions, Algatec intends to increasingly focus a portion of its business activities on Profit Center 2 - the sale of metallurgical crystalline solar modules to third parties other than Q-Cells.  The price currently being charged by Q-Cells to Algatec for metallurgical crystalline cells that are not covered by the OEM agreement (i.e., to be included in solar modules sold resale to third parties) may significantly increase.  This which would erode anticipated profit margins and Algatec’s projected earnings.  Because it does not control the production of cells or other components, Algatec may also be subject to delays caused by interruption in production of materials based on conditions not within its control. Such conditions include job actions or strikes by employees of Q-Cells or other suppliers, transportation interruptions, and natural disasters or other catastrophic events. There can be no assurance that Algatec will be able to obtain alternative sources of metallurgical crystalline cells or other componentsat favorable prices, or at all, if it experiences supply shortages.

Algatec’s strategy depends on continued outsourcing by Q-Cells and producers of solar modules and power plants.

Algatec's strategy to increase sales depends in part on the continued outsourcing by Q-Cells of metallurgical crystalline solar modules for installation in power projects.  Although Algatec believes that, as a world-wide supplier of metallurgical crystalline and other solar cells to module producers, Q-Cells would not elect to compete with its customers, there can be no assurance that it will not change its business strategy and enter the module manufacturing business in direct competition with Algatec and others.  In such event, Q-Cells would likely terminate its agreement with Algatec and may refuse to continue to sell Algatec metallurgical crystalline cells, or significantly raise the price of such solar module component.  In addition, other large producers of thin-film a-Si modules or operators of turn-key solar power facilities, may elect to stop outsourcing the purchase of equipment to manufacture such modules.  The occurrence of either of such events, would have a material adverse effect on our results of operations and financial condition.

There is no assurance that Algatec will be able to build equip and operate its new manufacturing facilities on schedule or within the amount budgeted for such purpose.

Even if Algatec is able to obtain the necessary financing, the construction of its manufacturing facility and receipt and installation of necessary production equipment could be materially delayed by factors beyond the control of Algatec, including labor disputes, material shortages and weather conditions.  There can also be no assurance that, once installed, the production equipment will work properly or efficiently; failing which Algatec’s production schedule could be materially delayed.  In addition, Algatec could face significant cost overruns in its construction and equipment installation efforts which could have a material adverse effect on its liquidity and production scheduling.

There is no assurance that Algatec will receive the investment premium under the 2007 Investment Premium Act or the subsidies under the regional aid scheme applied for and/or that we will not have to pay back the respective subsidies.

Algatec will have a legal right to obtain investment premiums under the 2007 Investment Premium Act provided that the statutory requirements of the 2007 Investment Premium Act are fulfilled.   On this basis, Algatec will have a legal right to obtain a 25% investment premium with regard to the movable assets (investments with regard to the purchase of machinery and equipment) and a 12.5% investment premium for the immovable assets (investments with regard to the construction of the 125,000 square foot plant addition).

Once the investments have been made and the movable and immovable assets have been constructed, purchased and installed, we believe that it is highly probable that the statutory requirements will have been fulfilled and that the German authority therefore will grant the investment premium calculated for the movable assets on the one hand and for the immovable assets on the other hand.  However, there is no assurance that the German administrative authority will not conclude that the statutory requirements have not been fulfilled, or seek to reclaim the investment premiums at a later stage.  For instance, the German administrative authority is obliged to repeal its decision and to reclaim the investment premium if the applicable company does not comply with the statutory requirements during the commitment period of three years after completion of the investment project.

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Further, Algatec will not have a strict legal right to obtain the administrative approval of a regional subsidy even if the requirements of the respective regional aid scheme are fulfilled.  Thus, it cannot be assured that the authority of the Land Brandenburggrant will grant the subsidy.  Even if the Land Brandenburggrant will grant the subsidy, it cannot be assured that, after exercising its discretion, the Land Brandenburggrant will not reclaim the subsidy at a later stage. The Land Brandenburggrant will be obliged to repeal its decision and to reclaim the subsidy if the requirements of the regional aid schemes are not fulfilled after the completion of the investment project.

In addition and even if the German administrative authorities approve the aforementioned state aid measures it is possible that the European Commission could, acting on its own initiative or following a complaint, come to the conclusion that the respective measure(s) is/are not compatible with the Common Market of the EU, it could oblige Germany to reclaim the relevant subsidies.  In such a case, Algatec might even be obliged to pay for interest and/or damages.

Algatec depends on the services of key executives and technical and other personnel, the loss of whom could materially harm our business or reduce its operational effectiveness.

Some of the Algatec senior executives, especially Rainer Ruschke and Ullrich Jank, are important to its success because they have been instrumental in developing with Komax its module stringing equipment and other technical capabilities, operating its business, identifying, and recruiting and training key personnel, identifying opportunities. Losing the services of any of these individuals could adversely affect Algatec's business until a suitable replacement could be found. We believe that they could not quickly be replaced with executives of equal experience and capabilities.  There is a continuing demand for qualified technical personnel, and we believe that our future growth and success will depend upon our ability to attract, train and retain such personnel.  Competition for personnel in our industry is intense, and there is a limited number of persons with knowledge of, and experience in, the crystalline module production business. Although Algatec currently experience relatively low rates of turnover for technical personnel, the rate of turnover may increase in the future. During surge production periods, Algatec relies on a substantial number of temporary employees. An inability to attract or maintain a sufficient number of technical or temporary personnel could have a material adverse effect on its contract performance or on its ability to capitalize on market opportunities.

Other Business Risks

Fixed-price contracts could subject us to losses in the event that we have cost overruns.

Substantially all of agreements with customers of Algatec and Kraft are based upon fixed-price contracts.  In a fixed-price contract, the price is not subject to adjustment based on cost incurred to perform the required work under the contract. Therefore, we and Kraft fully absorb cost overruns on fixed-price contracts, thereby reducing our profit margin.  Further risks associated with fixed-price contracts include the difficulty of estimating costs that are related to performance in accordance with contract specifications and the possibility of obsolescence in connection with long-term procurements.  We may not be able to accurately estimate the costs of the components and materials that we use to manufacture our products, because their prices have been, and we expect them to continue to be, subject to volatility. Also, any failure to anticipate technical problems, estimate costs accurately or control costs during performance of a contract can reduce our profitability. Under fixed-price contracts, we may not be able to pass price and cost increases on to our customers, which could have an adverse effect on our financial results.

We have no excess production facilities. Therefore, the loss of one of our facilities would adversely affect our production capability.

Our manufacturing operations occur at one facility located in Prosen, Germany.  We have no other production facilities at the present time.  We may lose production capability if a natural or other disaster were to occur that affected one of our facilities or if we were unable to renew an expired lease for any such facility. The loss of any of our facilities would adversely affect our production capacity and could have a material adverse effect on our results of operations or financial condition.

Governmental regulation may have a negative impact on our business.

Our operations and properties are subject to regulation by various government entities and agencies. As a producer of food products, our operations are subject to production, packaging, quality, labeling and distribution standards. Our manufacturing, processing and distribution facilities are also subject to various workplace regulations. We believe that our current compliance programs adequately address such concerns and that we are in substantial compliance with applicable laws and regulations. However, compliance with, or any violation of, current and future laws or regulations could require material expenditures or otherwise adversely affect our business and financial results.

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Product recalls could have a material adverse effect on our business.

Manufacturers of solar modules are sometimes subject to the recall of their products for a variety of reasons, including for product defects or failure to adequately perform to contract specifications. If any of our products are recalled due to a product defect or for any other reason, we could be required to incur the expense of the recall or the expense of any resulting legal proceeding. Additionally, if one of the significant products of Algatec or Kraft were subject to recall, the image of that brand and our company could be harmed, which could have a material adverse effect on our business and the consolidated operations of Solar Thin Films.

Product liability claims could have a material adverse effect on our business and that of Kraft.

We and Kraft face an inherent risk of exposure to product liability claims if any of the products we sell cause injury or illness. We have obtained liability insurance for product liability claims. We cannot assure you, however, that this insurance will continue to be available at a reasonable cost, or that any insurance that we obtain will be adequate to cover product liability claims against us. We generally obtain contractual indemnification from parties supplying our products, but this form of indemnification is limited, as a practical matter, to the creditworthiness and financial resources of the indemnifying party.  If we do not have adequate insurance or contractual indemnification available, losses associated with product liability claims could have a material adverse effect on our business, operating results and financial condition.

Environmental laws and regulations may subject us to significant costs and liabilities.

We are subject to various U.S. federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing and imposing liabilities for the discharge of pollutants into the air and water, the management and on-site and off-site disposal of hazardous substances and wastes, the maintenance of a safe workplace and the investigation and cleanup of contamination at currently or formerly owned, operated or leased sites, as well as third-party owned sites that may have been impacted by our operations. In addition, some of our operations require environmental permits and controls to prevent and limit pollution of the environment. We could incur substantial costs, including cleanup costs, civil or criminal fines, penalties or sanctions and third-party claims for property damage or personal injury, as a result of violations of or liabilities under environmental laws and regulations or non-compliance with the environmental permits required at our facilities. Some environmental laws impose strict, and under certain circumstances joint and several, liability on the current, as well as former, owners and operators of contaminated sites for costs of investigation and remediation of contamination on and emanating from these sites, and also impose liability for damages to natural resources. See discussion of the ongoing environmental issue at the site of our packaging plant in ‘‘Business—Environmental Matters’’ below at page 57.

These laws, regulations and permits also could require the installation of costly pollution control equipment or operational changes to limit pollution emissions or decrease the likelihood of accidental releases of hazardous substances. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination at our or other sites or the imposition of new cleanup requirements could require us to incur future costs that would have a negative effect on our results of operations or cash flow.

Risks Related to Solar Thin Films Common Stock

Our current stockholders are expected to incur significant immediate substantial dilution.

As of April 13, 2009, we had 58,136,113 shares of common stock issued and outstanding.  In addition, at such date there are an additional 21,388,959 shares issuable under outstanding options and warrants.  Assuming all shares of our common stock that are issuable under outstanding options, warrants are issued, a total of 79,525,072 shares would be issued and outstanding and our current stockholders’ equity in such common stock will be reduced to 73.1%, or a dilution of 26.9%.  In addition, inasmuch as the per  share price for the Company’s common stock has dropped significantly from a high of $1.14 in the quarter ended June 30, 2008 to $0.18 per share as at March 31, 2009, any additional common stock, convertible securities or warrants we may issue to raise much needed capital will further significantly dilute the equity ownership of our current stockholders.

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The proposed acquisition of Algatec will result in a further immediate and substantial dilution of the equity of our current stockholders.

Under the terms of our proposed share exchange agreement, the current stockholders of Algatec (which includes The Rubin Family Stock Trust formed by our Chairman, CEO and CFO, Robert M. Rubin) will receive, in exchange for 100% of the share capital of Algatec, 60% of the “Fully-Diluted Common Stock” of the Company.  Based on such definition (excluding adjustments that may result from shares or share equivalents that we may issue to provide financing for our company unrelated to the Algatec acquisition), the Algatec shareholders would receive (based on our current capitalization) approximately 150,000,000 additional shares of our common stock) or 60% of the approximately 250,000,000 million shares to be outstanding after such acquisition.  This transaction will therefore further reduce the equity of the 58,136,113 shares owned by our current common stockholders.

Our historic stock price has been volatile and the future market price for our common stock may continue to be volatile. Further, the limited market for our shares will make our price more volatile. This may make it difficult for you to sell our common stock for a positive return on your investment.

Our common stock is currently quoted on the OTC Bulletin Board under the symbol “SLTN". There is a limited trading market for our common stock. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.

The public market for our common stock has historically been very volatile. Any future market price for our shares may continue to be very volatile. This price volatility may make it more difficult for you to sell shares when you want at prices you find attractive. We do not know of any one particular factor that has caused volatility in our stock price. However, the stock market in general has experienced extreme price and volume fluctuations that often are unrelated or disproportionate to the operating performance of companies. Broad market factors and the investing public's negative perception of our business may reduce our stock price, regardless of our operating performance. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for you to sell our common stock for a positive return on your investment.

A sale of a substantial number of shares of our common stock may cause the price of its common stock to decline.

If our stockholders sell substantial amounts of the Company’s common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of its common stock could fall. These sales also may make it more difficult for the Company to sell equity or equity-related securities in the future at a time and price that the Company deems reasonable or appropriate. Stockholders who have been issued shares may be able to sell their shares pursuant to Rule 144 under the Securities Act of 1933, beginning six months after the stockholders acquired their shares.

We have not paid dividends in the past and do not expect to pay dividends in the future. Any returns on investment may be limited to the value of our common stock.

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.

Our common stock is deemed to be “penny stock” with a limited trading market. 

Our common stock is currently listed for trading on the OTC Bulletin Board which is generally considered to be a less efficient market than markets such as NASDAQ or other national exchanges, and which may cause difficulty in conducting trades and difficulty in obtaining future financing. Further, our securities are subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock rules apply to non-NASDAQ companies whose common stock trades at less than $5.00 per share or which have tangible net worth of less than $5,000,000 ($2,000,000 if we have been operating for three or more years). Such rules require, among other things, that brokers who trade "penny stock" to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade "penny stock" because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the "penny stock rules" for any significant period, there may develop an adverse impact on the market, if any, for our securities. Because our securities are subject to the "penny stock rules," investors will find it more difficult to dispose of our securities. Further, for companies whose securities are traded in the OTC Bulletin Board, it is more difficult: (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services, such as the Dow Jones News Service, generally do not publish press releases about such companies, and (iii) to obtain needed capital.

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Foreign Currency and Exchange Risks and Rate Revaluation.

We will be subject to significant foreign exchange risk. There are currently no meaningful ways to hedge currency risk in Hungary. Therefore, the Company’s ability to limit its exposure to currency fluctuations is significantly restricted. The Company’s ability to obtain dividends or other distributions is subject to, among other things, restrictions on dividends under applicable local laws and foreign currency exchange regulations of the jurisdictions in which its subsidiaries operate. The laws under which the Company’s operating subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital and required reserves and after the recovery of accumulated losses.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

The following table lists the office space that the Company leases from unaffiliated persons:

Lessee	Address of Property	Primary Use	Sq. feet		Rent Amount/ Month	Lease Terms
Kraft	1112 Budapest, Kőérberki út 36. Hungary	General operation Equipment manufacturing plant stockholder relations, general executive		23,200	USD 20,800	3 years from January 1, 2008 non-cancelable
Kraft	9900 Körmend Hegyalja u 42. Hungary	Equipment manufacturing plant		10,760	USD 1,600	unlimited with 6 months cancellation period

In November 2005, Kraft entered into a three year fixed term lease agreement for its corporate offices and facilities in Budapest, Hungary at a rate ranging from $4,543 to $15,433 per month as the lease has provisions for additional space for the period calendar year of 2006 and beyond. The lease agreement provides for moderate increases in rent after December 31, 2006 in accordance with the inflationary index published by the Central Statistical Office. Rental expenses charged to operations for the year ended December 31, 2008 and 2007 are $266,359 and $217,885, respectively.  In late 2007, the Company signed a modified rental agreement for the Budapest facilities and expanded its spaces as well as extended the contract for an additional three years period of time, which resulted in a slight increase in rent from 2007 to 2008.

The Company also has a mailing address within the United States located at 25 Highland Blvd., Dix Hills, New York 11746.

We believe that our facilities are adequate to meet our current needs. Our offices are in good condition and are sufficient to conduct our operations. We do not intend to renovate, improve, or develop properties. We are not subject to competitive conditions for property and currently have no property to insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.

Item 3. Legal Proceedings.

New York Medical, Inc. and Redwood Investment Associates, L.P. vs. American United Global, Inc., et al. (Supreme Court, New York State, New York County). In this suit, filed on December 12, 2003, plaintiffs seek a declaration that a series of transactions by which we allegedly acquired Lifetime Healthcare Services, Inc. ("Lifetime") and Lifetime acquired an interest in NY Medical from Redwood (collectively "Transactions") were properly rescinded or, alternatively, that because the Transactions were induced by fraudulent conduct of our company and others, that the Transactions should be judicially rescinded. In addition to the requests for equitable relief, plaintiffs also seek monitory damages in excess of $5 million and exemplary damages in the amount of $15 million.

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Currently, the suit has not proceeded past the filing and service of the complaint. We have obtained an open-ended extension of time in which to answer and/or move with regard to the complaint. We are attempting to resolve the matter amicably. However, in the event litigation proceeds, it will be aggressively defended.  Management believes that the plaintiff’s suit is without merit, and further believes the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

From time to time, we are a party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not involved currently in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

Item 4. Submission of Matters to a Vote of Security Holders.

We have not submitted any matters to a vote of security holders in the fourth quarter of 2008 or thereafter.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol "SLTN.OB" Effective as of July 3, 2006, the Company changed its name from American United Global, Inc. to Solar Thin Films, Inc. As a result, our quotation symbol changed from “AUGB.PK” to “SLTF.PK”. In February 2007, the Company’s symbol was changed to SLTN.OB. The following table shows the reported high and low closing bid quotations per share for our common stock based on information provided by the Over-the-Counter Bulletin Board. Particularly since our common stock is traded infrequently, such over-the-counter market quotations reflect inter-dealer prices, without markup, markdown or commissions and may not necessarily represent actual transactions or a liquid trading market

Year Ended December 31, 2008	High		Low
First Quarter ended March 31, 2008	$	1.65	$	0.72
Second Quarter ended June 30, 2008	$	1.14	$	0.76
Third Quarter ended September 30, 2008	$	0.90	$	0.58
Fourth Quarter ended December 31, 2008	$	0.65	$	0.17
Year Ended December 31, 2007	High		Low
First Quarter ended March 31, 2007	$	2.24	$	0.82
Second Quarter ended June 30, 2007	$	0.93	$	0.47
Third Quarter ended September 30, 2007	$	1.09	$	0.57
Fourth Quarter ended December 31, 2007	$	1.57	$	0.94
Year Ended December 31, 2006	High		Low
First Quarter ended March 31, 2006	$	3.20	$	1.36
Second Quarter ended June 30, 2006	$	3.52	$	1.36
Third Quarter ended September 30, 2006	$	3.12	$	1.92
Fourth Quarter ended December 31, 2006	$	2.27	$	1.52

The shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.

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The Commission generally defines penny stock to be any equity security that has a market price less than $5.0 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the registrant's net tangible assets; or exempted from the definition by the Commission. Trading in the shares is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse.

For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, the monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker dealers to trade and/or maintain a market in the company’s common stock and may affect the ability of shareholders to sell their shares.

Number of Shareholders

As of December 31, 2008, there were 57,810,601 shares of our common stock issued and outstanding and 180 holders of record of our common stock. The transfer agent of our common stock is Corporate Stock Transfer, LLC, 3200 Cherry Creek Dr. South, Suite 430, Denver, CO 80209.

Dividends

Except for dividend payment declared by Kraft in 2001 and 2002, we have never paid cash dividends or distributions to our equity owners. We do not expect to pay cash dividends on our common stock, but instead, intend to utilize available cash to support the development and expansion of our business. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including but not limited to, future operating results, capital requirements, financial condition and the terms of any credit facility or other financing arrangements we may obtain or enter into, future prospects and in other factors our Board of Directors may deem relevant at the time such payment is considered. There is no assurance that we will be able or will desire to pay dividends in the near future or, if dividends are paid, in what amount.

Shares eligible for future sale could depress the price of our common stock, thus lowering the value of a buyer’s investment. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for shares of our common stock.

Our revenues and operating results may fluctuate significantly from quarter to quarter, which can lead to significant volatility in the price and volume of our stock. In addition, stock markets have experienced extreme price and volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons unrelated or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.

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Equity Compensation Plan Information

The following table presents information as of December 31, 2008 with respect to compensation plans under which equity securities were authorized for issuance.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders
2001 Stock Plan	-0-	$	-0-	-0-
2007 Stock Plan	-0-	$	-0-	5,000,000
Equity compensation plans not approved by security holders	-0-	$	-0-	-0-
Total	-0-	$	-0-	5,000,000

The equity compensation plans are discussed in Note 15 of the 2008 Consolidated Financial Statements.

Other than as set forth above, we do not have any stock option, bonus, profit sharing, pension or similar plan.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no purchases or repurchases of our equity securities by the Company or any affiliated purchasers.

Unregistered Sales of Equity Securities and Use of Proceeds

During the fourth quarter of 2008, we issued (or contracting to issue) equity securities without registration under the Securities Act of 1933, as amended, as follows:

On September 29, 2008, the Company and Kraft entered into a stock exchange agreement (the “Exchange Agreement”) with Buda Solar Technologies Co. Ltd. (“Buda Solar”), New Palace Investments Ltd., a Cyprus corporation (“NPI”), Istvan Krafcsik (“Krafcsik”) and Attila Horvath (“Horvath”, and collectively with NPI and Krafcsik, the “Buda Solar Stockholders”). Under the terms of the Exchange Agreement, Kraft agreed to acquire from the Buda Solar Stockholders 100% of the outstanding registered share equity capital of Buda Solar in exchange for 40% of the outstanding capital stock or share capital of Kraft on a fully diluted basis.

On April 3, 2009, the Company, Kraft, BudaSolar and the BudaSolar Stockholders entered into an amended and restated stock exchange agreement (the “Amended Exchange Agreement”) dated as of April 2, 2009 under which Kraft agreed to acquire from the BudaSolar Stockholders 100% of the outstanding registered share equity capital of BudaSolar in exchange for the Company transferring to the BudaSolar Stockholders 49% of the outstanding capital stock or share capital (the “Kraft Shares”) of Kraft (the “Share Exchange”).  As a result, the Company will own 51% of Kraft and its 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of BudaSolar.  In addition, the Amended Exchange Agreement deleted the put option of the BudaSolar Stockholders, and the call option of the Company and Kraft, each resulting in the Company and Kraft acquiring from the BudaSolar Stockholders 100% of Kraft Shares owned by the BudaSolar Stockholders or their affiliates after the closing of the Share Exchange.

On October 27, 2008, the Company issued 5 year options to purchase an aggregate of 500,000 shares of common stock at an exercise price equal to $0.42 per share to Mr. Gary Maitland and Dr. Boris Goldstein as compensation for services to be performed by them in their capacities as directors of the Company. Such options vest in accordance with the following schedule: (i) options to purchase 83,333 shares of common stock vest on October 27, 2009; (ii) options to purchase 83,333 shares of common stock vest on October 27, 2010; and (iii) options to purchase 83,334 shares of common stock vest on October 27, 2011.

Effective as of October 30, 2008, the trustee, the management group and the Partnership (collectively, the “Algatec Stockholders”) and Algatec entered into a stock exchange agreement with the Company (the “Stock Exchange Agreement”) under which the Algatec Stockholders (including the Partnership) agreed to exchange 100% of the share capital of Algatec for 50,000 shares of Company’s Series B-5 preferred stock which is convertible at any time at the option of the holder(s) into that number of shares of common stock of the Company (“Company Common Stock”) as shall represent 60% of the “Fully-Diluted Common Stock” of Company. The term “Fully-Diluted Common Stock” means the aggregate number of shares of Company Common Stock issued and outstanding as at the date of closing of the share exchange, after giving effect to (i) the issuance by the Company between the date of the First Closing and the closing of the share exchange of any Company Common Stock or shares issuable upon the conversion or exercise of any securities convertible into or exercisable for shares of Company Common Stock. However, Fully-Diluted Common Stock does not include, and the Algatec Stockholders will be subject to pro-rata dilution in connection with, (i) any shares of Company Common Stock issued or issuable upon exercise of the 12,000,000 currently outstanding warrants expiring on June 30, 2010 that are exercisable at exercise prices ranging from $2.20 to $3.30 per share, or (ii) any shares of Company Common Stock issued or issuable upon the conversion or exercise of any securities convertible into or exercisable for shares of Company Common Stock in connection with the Algatec Financing.

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All of the above offerings and sales were deemed to be exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of Solar Thin Films, Inc. or executive officers of Solar Thin Films, Inc., and transfer was restricted by Solar Thin Films, Inc. in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition or Results of Operations.

WE URGE YOU TO READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO BEGINNING ON PAGE F-1. THIS DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS AS A   RESULT OF A NUMBER OF FACTORS, INCLUDING BUT NOT LIMITED TO THE RISKS AND UNCERTAINTIES DISCUSSED UNDER THE HEADING “RISK FACTORS” IN THIS FORM 10-K AND IN OUR OTHER FILINGS WITH THE SEC. IN ADDITION,  SEE “CAUTIONARY   STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ” SET FORTH IN THIS REPORT.

Overview

Solar Thin Films, Inc. (the “Company”) is a business focused on the solar energy industry.  We engage in the manufacture, sale and distribution of equipment that is used to produce thin film amorphous silicon (or “a-Si”) photovoltaic solar panels or modules and provide turn-key a-Si module manufacturing facilities.  The Company through its wholly owned subsidiary, Kraft Elektronikai Zrt (“Kraft”), is presently engaged in the design, development and construction on behalf of its customers of both photovoltaic manufacturing equipment and both alone and sometimes through strategic partners of “turnkey” manufacturing plants that produce photovoltaic thin film modules.  The Company expects the primary use of such photovoltaic thin film modules will be the construction of solar power plants by corporations and governments.

On April 3, 2009, the Company and Kraft entered into a restated share exchange agreement with Buda Solar Technologies Co. Ltd. (“Buda Solar”) and its shareholders.  Under the terms of such agreement, subject to the satisfaction of certain closing conditions, Kraft will acquire 100% of the share capital of Buda Solar and will issue to the stockholders of Buda Solar 49% of the share capital of Kraft.  As a result, the Company will own 51% of Kraft and our 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of Buda Solar.  Buda Solar is engaged in the providing technical and installation services for the production and installation of thin film a-Si solar module manufacturing equipment.  Consummation of the Buda Solar transaction is scheduled to occur in June 2009.

Effective as of October 30, 2008, the Company entered into a stock exchange agreement with Algatec Solar AG and its shareholders.  Algatec produces, sells and distributes metallurgical and other types of crystalline silicon solar panels or modules.  For a description of the terms of this agreement, see “Description of our Business –Algatec-Potentialmanufacture of crystalline silicon solar modules” in this Form 10-K.

The Company, in the future, may further vertically integrate itself within this industry through activities in, but not limited to, investing in and/or operating the module manufacturing plants, selling thin film photovoltaic modules, and installing and/or managing solar power plants. The Company also intends, directly and through joint ventures or strategic alliances with other companies or governmental agencies, to sell equipment for and participate financially in solar power facilities using thin film a-Si solar modules or metallurgical and other crystalline solar modules as the power source to provide electricity to municipalities, businesses and consumers.

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Consummation of both the Buda Solar and Algatec acquisitions as well as all other expansion plans of the Company are subject to its ability to solve its significant working capital shortages; make payment or other arrangements for the resolution of approximately $2.9 million of indebtedness (approximately $1.75 million of which became in default in March 2009) and other accrued accounts payable, all of which are overdue.  In the event that the Company is unable to resolve these matters within the next 90 days, it may be unable to continue in business and/or may be required to seek protection from its creditors under the Federal Bankruptcy Act.

Kraft and Buda Solar are each Hungarian corporations and their headquarters are located in Budapest, Hungary.  Algatec is a German corporation and its headquarters are located in Proesen, Germany.  Solar Thin Films is a Delaware corporation and its headquarters are located at 25 Highland Boulevard, Dix Hills, New York 11746. Solar Thin Films website is located at www.solarthinfilms.com.

Company History

Solar Thin Films History

The Company was initially organized as a New York corporation on June 22, 1988 under the name Alrom Corp. ("Alrom"), and completed an initial public offering of securities in August 1990. Alrom effected a statutory merger in December 1991, pursuant to which Alrom was reincorporated in the State of Delaware under the name American United Global, Inc. Prior to the acquisition of Kraft, the Company intended to focus its business strategy on acquisitions of operating businesses in various sectors. On June 14, 2006, in connection with its business strategy, the Company closed on the acquisition of 95.5% of the outstanding securities of Kraft. In additional, the Company acquired the remaining 4.5% minority interest in August 2007 and, as a result, now conducts its operations via Kraft, the wholly-owned subsidiary.

Kraft History

Kraft was founded in 1993, shortly after the breakup of the communist economy in Hungary. Its founding members were associated with the Hungarian Central Research Institute for Physics. In 1996, Kraft was contracted to develop thin-film photovoltaic deposition equipment for production of amorphous silicon based thin-film modules, as well as complete turnkey facilities. Photovoltaics (PV) is the physical phenomenon, which allows certain semiconductor materials to directly convert sunlight into electricity.

In the subsequent years, Kraft has manufactured equipment for such facilities in New Jersey, Germany, Hungary, China, Taiwan and Greece. In producing equipment for these facilities, Kraft developed substantial equipment manufacturing expertise. More recently as a supplier to RESI for the CG Solar project in Weihai, China Kraft developed additional process expertise required to allow it to become a leading manufacturer of “turnkey” plants, including the delivery of both equipment and services, that produce photovoltaics modules utilizing thin-film technology. Kraft is now using this expertise to deliver its first "turnkey" plant in Spain commencing in December 2008 and continuing through 2009.

Stock Exchange Agreement with Buda Solar Technologies Co. Ltd.

On April 3, 2009, the Company and Kraft entered into a restated share exchange agreement with Buda Solar Technologies Co. Ltd. (“Buda Solar”) and its shareholders.  Under the terms of such agreement, subject to the satisfaction of certain closing conditions, Kraft will acquire 100% of the share capital of Buda Solar and will issue to the stockholders of Buda Solar 49% of the share capital of Kraft.  As a result, the Company will own 51% of Kraft and our 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of Buda Solar.  Buda Solar is engaged in the providing technical and installation services for the production and installation of thin film a-Si solar module manufacturing equipment.  Consummation of the Buda Solar transaction is scheduled to occur in June 2009.

Under the terms of a separate agreement with Buda Solar, Kraft has contracted to purchase from Buda Solar certain technical services on a consulting basis for a fee of $250,000 per month.  A total of $750,000 has been paid as of March 31, 2009.

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Agreements with Algatec Solar AG

On October 20, 2008, Robert M. Rubin, Chairman, Chief Executive Officer and Chief Financial Officer of Solar Thin Films, formed Algatec Equity Partners, L.P., a Delaware limited partnership (the “Partnership”), for the purpose of acquiring up to 49% of the share capital of Algatec.  Effective as October 30, 2008, Algatec and members of Algatec senior management consisting of Messrs. Rainer Ruschke, Ullrich Jank, Dr. Stefan Malik and Andre Freud (collectively, the “Management Stockholders”), and Anderkonto R. Richter, Esq.,as trustee for Mr. Ruschke and another Algatec stockholder (the “Trustee”), entered into a share purchase agreement (the “Algatec Share Purchase Agreement”).  Under the terms of the Algatec Share Purchase Agreement, on November 3, 2008 (the “First Closing”) the Partnership invested an aggregate of $3,513,000, of which approximately €2,476,000 was represented by a contribution to the equity of Algatec to enable it to acquire all of the assets and equity of Trend Capital, the predecessor to Algatec.  The Partnership also purchased for €1.00 per share a total of 13,750 Algatec shares, representing 27.5% of the outstanding share capital of Algatec.

The general partner of the Partnership is Algatec Management LLP, a Delaware limited liability company owned by The Rubin Family Irrevocable Stock Trust and other persons.  Mr. Rubin and Barry Pomerantz, a business associate of Mr. Rubin, are the managers of the general partner.  Under the terms of the limited partnership agreement, the general partner agreed to invest a total of $165,000 in the Partnership in consideration for 5.0% of the assets, profits and losses of the Partnership.  The limited partners, who invested an aggregate of $3,200,000 at the First Closing and additional persons the Partnership will seek to admit as limited partners by the Second Closing, will own 95.0% of the Partnership assets, profits and losses. As part of the First Closing, The Rubin Family Irrevocable Stock Trust invested an additional $1,500,000, as a limited partner, on the same terms as other limited partners of the Partnership.

In addition to its equity investment, the Partnership has agreed under the terms of a loan agreement entered into at the same time as the Algatec Share Purchase Agreement, to lend to Algatec on or about November 30, 2008 (the “Second Closing”), an additional $2,600,000 or approximately €2,000,000.  The proceeds of the loan was to be used to assist Algatec in paying the balance of the purchase price for all of the assets and equity of the Trend Capital limited partnership.  Upon funding of the loan, the Partnership would purchase for €9,250 an additional 9,250 shares, representing 21.5% of the outstanding share capital of Algatec, thereby increasing its ownership to an aggregate of 49% of the outstanding share capital of Algatec.  The loan, together with interest at the rate of 6% per annum, is repayable on the earlier of December 31, 2012 or the completion of a financing providing Algatec with up to $50.0 million of proceeds for expansion (the “Algatec Financing”).  Upon the Partnership funding the entire €2,000,000 loan at the Second Closing, the Management Group would own the remaining 51% of the share capital of Algatec.  If the Partnership funds less than the full €2,000,000 loan, the additional 21.5% equity to be issued to the Partnership at the Second Closing was to have been appropriately pro-rated.  On December 29, 2008, the Partnership consummated the Second Closing with Algatec and funded a loan of €2,000,000 ($2.6 million) as a result of which the Partnership’s total equity ownership in Algatec was fixed at 49% of the total number of outstanding Algatec shares.

Effective as of October 30, 2008, the Trustee, the Management Group and the Partnership (collectively, the “Algatec Stockholders”) and Algatec entered into a stock exchange agreement. Under the terms of the stock exchange agreement the Algatec stockholders agreed, subject to certain conditions, to exchange 100% of the share capital of Algatec for shares of our newly authorized Series B-5 convertible preferred stock.  The Series B-5 preferred stock is convertible at any time into that number of shares of our common stock as shall represent 60% of our “Fully-Diluted Common Stock” (as defined).  The term “Fully-Diluted Common Stock” means the aggregate number of shares of Company common stock issued and outstanding as at the date of closing of the share exchange, aftergiving pro-forma effect to the sale or issuance of any shares of common stock (a) that were issued at any time following the October 30, 2008 date of execution of the stock exchange agreement and prior to consummation of the Algatec acquisition, (b) that are issuable upon conversion of any Company convertible securities or upon the exercise of any warrants that were issued at any time between October 31, 2008 and consummation of the Algatec acquisition, and (c) that are issuable upon full conversion of the Series B-5 preferred stock.  However, the Algatec stockholders shall be subject to pro-rata dilution resulting from the issuance of (i) approximately 19.6 million shares of Company common stock issuable upon conversion of convertible notes or the exercise of options and warrants that were outstanding as at October 30, 2008, (ii) any shares of Company common stock issued in connection with providing financing for Algatec (as described below), or (iii) any shares of Company common stock issued or issuable after completion of the Algatec acquisition.  Consummation of the Algatec acquisition is subject to certain conditions, including Algatec obtaining up to $50.0 million of the Algatec Financing to enable it to construct the addition to its existing manufacturing facility and purchase the necessary equipment to expand its business and meet contractual obligations to Q-Cells and other customers, as described above.

On April 10, 2009, the parties agreed to extend the anticipated closing date of the transactions contemplated by the Stock Exchange Agreement to July 15, 2009.

There can be no assurance that the necessary Algatec Financing will be obtained or that the proposed Algatec acquisition will be consummated.

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Under the terms of the Stock Exchange Agreement, each of Messrs. Ruschke, Malik, Jank and Freud will enter into five year employment agreements with Algatec pursuant to which Mr. Ruschke will receive an annual salary of €180,000 (approximately USD $246,600) and each of Messrs. Malik, Jank and Freud will receive annual salaries of €100,000 (approximately USD $137,000), subject to 5% annual cost-of-living increases.  In addition, such executives shall be entitled to receive annual bonuses equal to 10% of the annual net income before interest and taxes of Algatec (“EBIT”) for each of the five years, subject to an annual “cap” on such bonuses that will not exceed 100% of their annual salaries if annual EBIT is €10.0 million or less in any of the five fiscal years, and 200% of their annual salaries if such annual EBIT is more than €10.0 million in any of the five fiscal years.  Each of Messrs. Ruschke, Malik, Jank and Freud have also agreed, for a period equal to the greater of five years or the term of their individual employment with Algatec, not to compete with the “business” of the Company (defined as (i) the manufacture and sale of photovoltaic module equipment of all types, (ii) the installation of turn-key module manufacturing facilities of all types; (iii) the manufacture and sale of photovoltaic cells or modules of all types; and (iv) the installation and operation of power projects, including the supplying of solar power electricity to private industry, consumers or local or foreign governments and municipalities).

If the Algatec acquisition is consummated, the board of directors of our Company will be expanded to seven persons, of which three members of the board of directors shall be represented by the Management Stockholders.  Messrs. Ruschke, Malik and Jank have agreed to serve on our board of directors.

Solar Thin Power

In 2007, the Company formed Solar Thin Power, Inc. under the laws of the State of Delaware.  Solar Thin Power was to engage in power projects.  It currently owns a 15% interest in CG Solar Company Limited, the Company’s joint venture in China (and has agreed to purchase another 5%), and is in preliminary discussions with other prospective joint venture partners with respect to marketing and financing of various power projects.

In 2007 and 2008, Solar Thin Power received an aggregate of $3,498,396 of financing from ten unaffiliated investors who purchased common stock of Solar Thin Power at $0.50 per share.  Approximately $1,500,000 of the proceeds of such financing used by Solar Thin Power to acquire a 20% minority interest in a thin film a-Si solar module manufacturing facility in China and the balance of such proceeds were loaned to Solar Thin Films for working capital.  Under the terms of the transaction, if Solar Thin Power was not a publicly traded corporation by June 2009, the investors in Solar Power have the right to require Solar Thin Films to repurchase half of their portion of their minority equity in Solar Power for $1,767,500.

As of December 31, 2008, an aggregate of 67,570,000 shares of Solar Thin Power were issued and outstanding, of which Solar Thin Film owned 44,000,000 or 65.12% the outstanding shares of Solar Thin Power common stock.  In April 2009, Solar Thin Films agreed to transfer 2,000,000 of its Solar Thin Power shares to Strategic Growth International Inc. in lieu of cash compensation payable under a one year investor relations agreement expiring March 31, 2010.  In addition, Solar Thin Power agreed to issue three year warrants to purchase an additional 2,000,000 shares of Solar Thin Power to Strategic Growth International at an exercise price of $0.20 per share.

As a result of the foregoing transactions, as of April 15, 2009, Solar Thin Films owns an aggregate of 33,900,000 shares of Solar Thin Power common stock, and stockholders of Solar Thin Power, other than Solar Thin Films, currently own an aggregate of 25,570,000 shares of the 59,470,000 outstanding shares of Solar Thin Power common stock, and Strategic Growth International holds warrants to purchase an additional 2,000,000 shares of Solar Thin Power.  Peter C. Lewis, Group Vice President and General Manager of the Thin Film Group and former Chief Executive Officer and President of Solar Thin Films owns 3,000,000 shares of Solar Thin Power and The Rubin Family Stock Trust owns 3,000,000 shares of Solar Thin Power.

Critical Accounting Policies

The Company's discussion and analysis of its consolidated financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. The Company chooses accounting policies within US GAAP that management believes are appropriate to accurately and fairly report the Company's consolidated operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

· Revenue Recognition;

· Cost of Sales;

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· General, Selling and Administrative Expenses;

· Allowance for doubtful accounts;

· Research and development;

· Warrant liability;

· Product warranty reserve;

·  Stock Based Compensation;

· Use of Estimates; and

· Acquisition - Kraft.

Revenue Recognition

For revenue from product/contract sales (Equipment Sale) which include equipment and sometimes installation, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104"), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101"). SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) Persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured.

Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Deferred revenues as of December 31, 2008 and 2007 amounted to $33,452 and $0, respectively. SAB 104 incorporates Emerging Issues Task Force 00-21 (“EITF 00-21"), Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.

The Company recognizes revenue when persuasive evidence of an arrangement exists, the price to the customer is fixed, collectibility is reasonable assured and title and risk of ownership is passed to the customer, which is usually upon shipment. However, certain customers traditionally have requested to take title and risk of ownership prior to shipment. Revenue for these transactions is recognized only when:

1.  Title and risk of ownership have passed to the customer;

2.  The Company has obtained a written fixed purchase commitment;

3.  The customer has requested the transaction be on a bill and hold basis;

4.  The customer has provided a delivery schedule;

5.  All performance obligations related to the sale have been completed;

6.  The product has been processed to the customer’s specifications, accepted by the customer and made ready for shipment; and

7.  The product is segregated and is not available to fill other orders.

The remittance terms for these “bill and hold” transactions are consistent with all other sale by the Company. There were no bill and hold transactions at December 31, 2008 and 2007.

For Complete Factory sales, which include sale of equipment, installation and commissioning, the Company recognizes revenues from the product portion (pieces of equipment) on shipment and services portion (installation and commissioning process) upon completion of the installation and commissioning process.  The commissioning includes a range of consulting services necessary to successfully complete a performance test, such as training of management, engineering and production personnel, debugging and resolving problems, initial oversight or support for vendor relations and purchasing, documentation and transfer of process knowledge and potential co-management of the production line during performance testing or completion of the training process.  The Company has started its shipment of the factory sales, product portion (pieces of equipment) in December 2008, and the service portion (installation and commissioning) is expected to be completed during the fiscal year 2009.

The Company has accounted for its Equipment Sales and Factory Sales arrangements as separate units of accounting as a) the shipped equipment (both Equipment Sales and Factory Sales) has value to the customer on a standalone basis, b) there is an objective and reliable evidence of the fair value of the service portion of the revenue (installation and commissioning) as such approximate the fair value that a third party would charge the Company’s customer for the installation and commissioning fees if the customer so desire not to use the Company’s services, or the customer could complete the process using the information in the owner’s manual, although it would probably take significantly longer than it would take the Company’s technicians and or a third party to perform the installation and commissioning process, and c) there is no right of return for the shipped equipment and all equipments are inspected and approved by the customer before shipment.

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Cost of Sales

Cost of sales includes cost of raw materials, labor, subcontractor work, inbound freight charges, purchasing and receiving costs, inspection costs, internal transfer costs and absorbed indirect manufacturing cost, as well as installation related travel costs and warranty costs.

General, Selling and Administrative Expenses

General, selling and administrative expenses primarily include indirect labor costs, rental fees, accounting, legal and consulting fees. The Company classifies all of its depreciation and amortization expenses as operating expenses under a separate line item, depreciation and amortization.

Allowance For Doubtful Accounts

We are required to estimate the collectibility of our trade receivables. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past due balances. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers' financial condition. Through these evaluations we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received. Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but are not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers and if circumstances related to our customers deteriorate, our estimates of the recoverability of our receivables could be materially affected and we may be required to record additional allowances. Alternatively, if we provided more allowances than are ultimately required, we may reverse a portion of such provisions in future periods based on our actual collection experience.

Research and development

Solar Thin Film’s accounts for research and development costs in accordance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs.” Under SFAS 2, all research and development cost must be charged to expense as incurred. Accordingly, internal research and development cost are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.

Warrant Liability

In connection with the placement of certain debt instruments during the twelve month ended December 31, 2006, the Company issued freestanding warrants. Although the terms of the warrants do not provide for net-cash settlement, in certain circumstances, physical or net-share settlement is deemed to not be within our control and, accordingly, the Company are required to account for these freestanding warrants as a derivative financial instrument liability, rather than as shareholders’ equity.

The warrant liability is initially measured and recorded at its fair value, and is then re-valued at each reporting date, with changes in the fair value reported as non-cash charges or credits to earnings. For warrant-based derivative financial instruments, the Black-Scholes option pricing model is used to value the warrant liability.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

Product Warranty Reserves

The Company provides for estimated costs to fulfill customer warranty obligations upon recognition of the related revenue in accordance with the FASB Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for Guarantees” as a charge in the current period cost of goods sold. The range for the warranty coverage for the Company’s products is up to 18 to 24 months. The Company estimates the anticipated future costs of repairs under such warranties based on historical experience and any known specific product information. These estimates are reevaluated periodically by management and based on current information, are adjusted accordingly. The Company’s determination of the warranty obligation is based on estimates and as such, actual product failure rates may differ significantly from previous expectations.

The Company accrued a provision for product warranty of approximately $180,000 during 2007; of which approximately $85,000 was utilized during the year ended December 31, 2007. An additional $73,000 warranty liability was accrued during the year ended December 31, 2008 after the utilization of $108,070 in 2008, while approximately $59,930 remaining as of December 31, 2008.

Stock Based Compensation

Effective for the year beginning January 1, 2006, the Company has adopted SFAS 123 (R) “Share-Based Payment” which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and eliminates the intrinsic value method that was provided in SFAS 123 for accounting of stock-based compensation to employees. The Company made no employee stock-based compensation grants before December 31, 2005 and therefore has no unrecognized stock compensation related liabilities or expense unvested or vested prior to 2006. Stock-based compensation expense recognized under SFAS 123(R) for the year ended December 31, 2008 and 2007 was $1,085,016 and $356,618, respectively (Note 15). 

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Use of Estimates

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities, if any, at the date of the financial statements. The Company analyzes its estimates, including those related to future contingencies and litigation. The Company bases its estimates on assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Acquisition - Kraft

Commencing in March 2006 through June 2006, the Company entered into Securities Purchase Agreements with shareholders of Kraft that together owned 95.5% of the equity interest in Kraft to acquire their interests. On June 14, 2006, the Company closed on the acquisition of 95.5% of the outstanding securities of Kraft and, as a result, Kraft became a majority-owned subsidiary of the Company. In consideration for the shares of Kraft, the Company issued the sellers an aggregate of 95,500 shares of Series B-4 Preferred Stock of the Company (the “Preferred Shares”). Each Preferred Share is automatically converted into 350 shares of common stock or an aggregate of 33,425,000 shares of common stock upon us increasing our authorized shares of common stock and, prior to such conversion, the Preferred Shares had the same voting rights of the shares of common stock and voted together with the shares of common stock on all matters.

As a result of the Securities Purchase Agreement, there was a change in control of STF, the public entity. In accordance with SFAS No. 141, Kraft was the acquiring entity. While the transaction is accounted for using the purchase method of accounting, in substance the Agreement is a recapitalization of Kraft's capital structure. For accounting purposes, the Company accounted for the transaction as a reverse acquisition and Kraft is the surviving entity. The total purchase price and carrying value of net assets acquired was $6,681,891. Additionally, on August 3, 2007, the Company acquired the remaining 4.5% minority interest of Kraft in exchange for 1,575,000 shares of common stock value at $1,181,250, and as a result, Kraft is now a wholly-owned subsidiary of the Company. The Company did not recognize goodwill or any intangible assets in connection with the transaction. Prior to the Agreement, the Company was an inactive corporation with no significant assets and liabilities.

Commitments and Contingencies

The Company’s subsidiaries have entered into non-cancelable operational agreements for office premises.

In connection with the acquisition of Kraft, the Company entered into consulting agreements with Robert Rubin and Zoltan Kiss pursuant to which each consultant would receive an annual salary of $160,000 per annum, reimbursement for up to $5,000 in expenses associated with company activities and major medical benefits in consideration for services performed on behalf of the company. Each of these agreements was for a term of three years and has been supplanted by subsequent events. Mr. Rubin’s salary was increased to $225,000 per annum when he assumed the duties of Chief Financial Officer. In December 2007, Mr. Kiss resigned as director of the Company and subsequently agreed to waive his rights to such payments pursuant to a pending settlement agreement with the Company as described elsewhere in this annual report.

On June 20, 2007, Peter Lewis and the Company entered into an Employment Agreement pursuant to which Mr. Lewis has agreed to serve as the Chief Executive Officer of the Company. The Employment Agreement contains the following terms:

· base salary of $225,000 per year;

· the issuance of 187,617 shares of common stock per year;

· a bonus paid pursuant to the Executive Officer Incentive Plan as determined by the Board of Directors;

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· a ten year option to purchase 3,000,000 shares of common stock at an exercise price of $0.533 per share on a cashless basis vesting on a pro-rata basis over a period of two years;

· participation in all employee benefit plans and programs; and

· reimbursement of reasonable expenses.

On April 7, 2009, the Company entered into an amendment to the employment agreement of Peter Lewis under which Mr. Lewis agreed to resign as the President, Chief Executive Officer and as a member of the board of directors of the Company, effective as of March 31, 2009. There was no disagreement or dispute between Mr. Lewis and the Company which led to his resignation.  Effective as of April 1, 2009, Mr. Lewis was appointed as Group Vice President and General Manager of the Thin Film Group of the Company through June 1, 2010.  The Thin Film Group shall consist of the manufacture and sale of PV Equipment.  In this capacity, Mr. Lewis will be primarily responsible for generating orders and sales of PV Equipment and he will provide general oversight of the manufacturing operations of the Kraft and BudaSolar subsidiaries of the Company, and together with Messrs. Krafcsik and Horvath, will be responsible for generating profits for the Thin Film Equipment Group.

For the period commencing April 1, 2009 and ending September 30, 2009, Mr. Lewis’ base salary shall be fixed at the rate of $225,000, payable in monthly installments of $18,750 each.  For the period commencing October 1, 2009, Mr. Lewis’ salary shall be reduced to the rate of $180,000 per annum, payable in monthly installments of $15,000 each.  On the earlier of June 30, 2009 or completion of an equity financing for the Company in excess of $3.0 million, the Company will pay to Mr. Lewis in one payment all accrued and unpaid salary that is owed under the original employment agreement for all periods through and including the date of payment of such accrued and unpaid salary.  In addition, Mr. Lewis shall be entitled to receive a sales commission on all PV Equipment that is sold or on which firm orders are received by the Company during the term of employment in an amount equal to: (i) a percentage to be determined by mutual agreement on or before April 30, 2009, of the “net sales price” (defined as gross selling price, less returns, discounts and allowances) of such PV Equipment, as and when paid in cash by the customer to the Company less (ii) the amount of all other finders fees, commissions and other payments made or payable by the Company to any other person, firm or corporation who participates in or assists Mr. Lewis in the sale of such PV Equipment; or such other bonus arrangement as may be made with Kraft management.

All 3,000,000 shares of common stock of ST Power owned by Mr. Lewis shall immediately and irrevocably vest.  Moreover, with respect to the stock options entitling Mr. Lewis to purchase up to 3,600,000 shares of Company common stock (the “Option Shares”), the parties agreed as follows (i)  options for 3,000,000 Options Shares shall be deemed to have fully vested as of March 31, 2009 and the remaining 600,000 Option Shares that have not vested will be forfeited as of March 31, 2009; (ii) the exercise price of all stock options were reduced from $0.533 per share to $0.18 per share, representing 100% of the closing price of Company common stock as at March 27, 2009, the effective date of the amendment to the employment agreement; (iii) all stock options for vested Option Shares may be exercised on a “cashless exercise” basis; and (iv) Mr. Lewis agreed to waive any rights to receive the 187,617 shares of Company common stock previously granted to him annually under the original employment agreement.

In November 2005, the Company entered into a three year fixed term lease agreement for our corporate offices and facilities in Budapest, Hungary at a rate ranging from $4,543 to $15,433 per month as the lease has provisions for additional space for the period calendar year of 2006 and beyond. The lease agreement provides for moderate increases in rent after the first year in accordance with the inflationary index published by the Central Statistical Office. In November 2007, the Company signed the modification of lease agreement resulted a charge of $20,800 per months from January 1, 2008 for three years period of time through December 31, 2010. The minimum future cash flow for the leases at December 31, 2008 is as follows:

	Amount:
Years ended:
December 31, 2009	$	249,600
December 31, 2010	$	249,600
Total	$	499,200

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The following table summarizes the cash commitments described above:

	Debt obligations (1)		Interest on Debt obligations		Operational Leases		Employment Agreements (2)		Total
2009	$	2,923,000	$	-	$	249,600	$	337,000	$	3,509,600
2010		-		-		249,600		112,500		362,100
2010		-		-		-		-		-
2011		-		-		-		-		-
After 2012		-		-		-		-		-
Total	$	2,923,000	$	-	$	499,200	$	449,500	$	3,871,700

(1)  Based on the assumption of demand cash payments by note holders.

(2)  Base salary of the Company’s CEO and CFO.

In 1996, the Company issued an unsecured 8% $1.5 million note to an  unrelated party that was due and payable April 30, 1999.  The note was governed by the laws of the State of New York.  The New York statute of limitations for seeking to collect on a note is six years from the maturity date.  The creditor has never sought to collect the note since its maturity date and in or about 2001 orally advised a representative of the Company that it had "written off the debt."  Although the Company has previously and currently listed the note as a liability on its balance sheet, it does not believe that it has any further liability under this note.

Results of Operations

Year ended December 31, 2008 as compared to the year ended December 31, 2007

Revenues

The following table summarizes our revenues for the years ended December 31, 2008 and 2007:

Year ended December 31,	2008		2007
Total Revenues	$	3,436,779	$	5,779,578

For the year ended December 31, 2008, revenues decreased by 40.5% or $2,342,799 as compared to the similar period in 2007.  The 40.5% decreased revenue for the year ended December 31, 2008 as compared to prior year is primarily due to completion of a large related party equipment sale amounted to $2,751,836 in 2007.  The Company did not derive any additional revenue from this related party contract during the year ended December 31, 2008.  In 2007, 100% of revenue was derived from Equipment Sales.

During 2008, the Company primarily delivered equipment to EPV Solar, a third party customer, first commencing in 2007, for facilities in Germany and New Jersey with a combined capacity of 50MW. While the total production capacity of facilities for which the Company produced equipment in 2008 increased as compared to over the year of 2007, the Company only produced a sub-set of the total equipment set and this was a significant factor in the overall decline in revenue. Equipment Sales totaled $3,289,517 or approximately 96% of revenue.

During 2007 and 2008, the Company also began to shift its marketing focus from Equipment Sales to Factory Sales (delivered on a “turnkey” basis, which by definition include a full set of equipment plus installation and training services or commissioning process). The Company signed its first deal in June of 2008, for which it completed its first minor equipment portion of the Factory Sales delivery in December of 2008 valued at $147,262. The Company began shipping the balance of the equipment in March of 2009 and expects to deliver substantially all of the equipment for this 7.9 million euro order during fiscal year 2009. During 2009, the Company expects that majority of its revenue will come from Factory sales rather than Equipment sales, and does not expect to derive any substantial revenue from related parties. Commencing in 2008, the Company has decided to further break out its revenue into Equipment Sales and Factory Sales and to continue to do so in the future in both annual and quarterly filings.

While the Company is pursuing additional business opportunities - both Factory Sales and Equipment Sales, given the limited amount of historical business volume we cannot provide assurance regarding future sales. As the Company shifts primarily from Equipment Sales secured by purchase orders to Factory Sales secured by contracts, management expects that it may become easier to forecast future volume based upon long-term contracts and then established trends. In either case, the Company produces individual pieces of equipment (standard not generally custom) based on individual customer orders.  Comparison of different financial reporting periods will show significant fluctuations, primarily due to the value of outstanding and completed contracts or orders during the period. Therefore, historical figures (whether on a comparative year over year percentage analysis in a linear fashion or otherwise) may not have much meaning with respect to future changes in revenue and should not be used to make predictions about future revenue performance. For example, revenue could increase 400% year over year if the Company booked and invoiced one or more complete factory orders or it could decrease 100% or more if the Company failed to successfully deliver on a Factory Sale order or only managed to book and invoice orders for production of selected equipment, i.e. an Equipment Sale.  Therefore, management is not in the position to predict future revenue flow or make conclusions based on actual historical figures.  For example, recent increases and decreases in revenue are not dramatic as compared to our existing 7.9 million euro contract with Grupo Unisolar, which is expected to be completed during 2009 and which commenced shipping in December 2008. However, we can not provide absolute assurance that signed contracts, Grupo Unisolar or other, will be completed as expected or predicted. One complete factory may exceed $12 million in value but with unexpected financial or technical problems, production may slow down the completion of the contract.  In conclusion, revenue prediction by management is difficult as of the date of this report.

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Cost of sales

The following table summarizes our cost of sales for the year ended December 31, 2008 and 2007:

Year ended December 31,	2008		2007
Total cost of sales	$	2,356,255	$	4,779,962

Our cost of revenue for the year ended December 31, 2008 were $2,356,255 or 68.6% of our sales as compared to $4,779,962, or 82.7% of our sales for the year ended December 31, 2007. Our decrease in cost of revenue of $2,423,707 from 2007 to 2008 were comprised of (i) a decrease of sales of 40.54% effecting our cost of sales by $1,937,797, (ii) higher overall margins primarily due to improved cost controls, (iii) selling directly to the customers in 2008 as compared to through a third party in 2007, and (iv) a stronger US Dollar effecting cost of sales positively by $162,386.

Our cost of revenue predominantly consists of the cost of labor, raw materials and absorbed indirect manufacturing cost.

Selling, General and Administration Expenses

The following table summarizes our selling, general and administration expense for the year ended December 31, 2008 and 2007:

Year ended December 31,	2008		2007
Total selling, general and administration expense	$	7,745,174	$	4,243,401

For the year ended December 31, 2008, selling, general and administrative expenses were $7,745,174 as compared to $4,243,401 in 2007. The increase in selling, general and administrative expenses of $3,501,773 is attributable to the additional staff, consultants, legal and audit related, an increase in  stock based compensation issued in 2008 of $1,085,016 as compared with $356,618 in 2007, reserves for doubtful accounts increases of $1,605,797 over 2007 and accrual for estimated acquisition/transaction costs of $500,000 incurred during 2008.

Research and development

The following table summarizes our research and development expenses for the years ended December 31, 2008 and 2007:

Year ended December 31	2008		2007
Research and development expenses	$	120,000	$	360,000

Our research and development for year ended December 31, 2008 were $120,000 compared to $360,000 for the year ended December 31, 2007. In late 2005, the Company suspended its research and development activity, while it signed a new contract with RESI in middle of December 2006 for a new agreement representing a monthly charge of $30,000 through the first four months of 2008.

Depreciation and amortization

The following table summarizes our depreciation and amortization for the years ended December 31, 2008 and 2007:

Year ended December 31,	2008		2007
Depreciation and amortization	$	190,025	$	220,860

Depreciation and amortization has decreased by $30,835 in the year ended December 31, 2008 compared to the same period in 2007. The decrease is mainly due to the aging of the equipment purchased in previous years.

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Interest expense, net

The following table summarizes our interest expense, net for the years ended December 31, 2008 and 2007:

Year ended December 31,	2008		2007
Interest expense, net	$	1,178,465	$	4,527,940

Interest expense, net has decreased by $3,349,475 in the year ended December 31, 2008 compared to the same period in 2007. The decrease is mainly due to the issuance of 4,029,000 shares of common stock in exchange for convertible notes payable in 2007 resulting in the write down of the related debt discount.  The decrease is primarily due to (i) an accelerated recognition of the associated debt discount relating to our convertible debt due to conversions resulting an additional $2,255,393 in interest expense.

Liquidity and Capital Resources

During the year ended December 31, 2008 Solar Thin Power, Inc., a majority owned subsidiary of the Company, acquired a 15% interest in CG Solar, formerly WeiHai Blue Star Terra Photovoltaic Co., Ltd, a Sino-Foreign Joint Venture Company organized under the laws of the People’s Republic of China for $1,500,000. The investment of $1,500,000 is carried at cost under the cost method of accounting for investment.

As of December 31, 2008, our cash and cash equivalents were $619,257, a decrease of $3,538,219 from December 31, 2007. As described below, the decrease in cash and cash equivalents was principally from (i) $2,590,106 operating activities, (ii) $1,500,000 investment in 15% ownership of CG Solar and $44,181 of acquisition of property and equipment, net with (iii) proceeds from sale of majority owned common stock of $150,000 and borrowing on a short term basis of $500,000.

As of December 31, 2008, we had working capital deficit of $7,261,614. We generated a deficit in cash flow from operations of $2,590,106 for the year ended December 31, 2008. This deficit is primary attributable to our net loss of $8,474,010, net with depreciation and amortization, amortization of debt discount, deferred compensation and deferred financing costs of $1,402,980 as well as $1,255,236 fair value of vested options, common stock and warrants issued, minority interests of $(67,904), $1,605,797 of allowance for doubtful account, $260,746 loss on settlement of real estate deposits, and the changes in the balances of assets and liabilities. Assets increased $1,904,581, net with an increase in liabilities of $3,331,630.

Cash flow used by investing activities for the year ended December 31, 2008 was $1,544,181, due to the acquisition of 15% interest in CG Solar of $1,500,000 and the purchase of property and equipment of $44,181.

We met our cash requirements during the year ended December 31, 2008 through borrowing $500,000 on a short term basis note payable. The note is non interest bearing and is due on March 4, 2009. In addition, as a consolidated group, we received net proceeds from the sale of common stock of our subsidiary, Solar Thin Power, Inc. of $150,000.

Exploitation of potential revenue sources will be financed primarily through the sale of securities and convertible debt, issuance of notes payable and other debt or a combination thereof, depending upon the transaction size, market conditions and other factors.

While we have raised capital to meet our working capital and financing needs in the past, additional financing is required within the next 3 months in order to meet our current and projected cash flow deficits from operations and development.  There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.

As at December 31, 2008, the Company’s consolidated current liabilities exceeded its consolidated current assets by $7,261,614.   The Company is currently in default in the payment of certain notes payable aggregating $1.75 million which became due in March 2009, and outstanding accounts payable of approximately $4.0 million are also past due.  Unless the Company is able to obtain additional capital or other financing within the next 60 to 90 days, or sooner, its creditors may sue to collect on their notes and accounts, which action may accelerate the due date of the Company’s other indebtedness aggregating approximately $1.2 million that is not currently in default.  In such event, the Company may be required to seek protection from its creditors under the Federal Bankruptcy Act.  Although the Company is actively pursuing such financing, there is no assurance that it will be obtained on commercially reasonable terms, if at all.  Even if such financing is obtainable, it may be expected that the terms thereof will significantly dilute the equity interests of existing stockholders of the Company.

Our registered independent certified public accountants have stated in their report dated April 15, 2009 that we have incurred operating losses in the last two years,  that we have suffered recurring losses from operations and that we are dependent upon management’s ability to develop profitable operations. These factors, among others, may raise substantial doubt about our ability to continue as a going concern.

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Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

Inflation and Foreign Currency

We maintain our books in local currency: US Dollars for the parent holding Company and Solar Thin Film Power, Inc. in the United States of America and Hungarian Forint for Kraft in Hungary.

We operate primarily outside of the United States through its wholly owned subsidiary. As a result, fluctuations in currency exchange rates may significantly affect our sales, profitability and financial position when the foreign currencies, primarily the Hungarian Forint, of its international operations are translated into U.S. dollars for financial reporting. In additional, we are also subject to currency fluctuation risk with respect to certain foreign currency denominated receivables and payables. Although the we cannot predict the extent to which currency fluctuations may or will affect our business and financial position, there is a risk that such fluctuations will have an adverse impact on the sales, profits and financial position. Because differing portions of our revenues and costs are denominated in foreign currency, movements could impact our margins by, for example, decreasing our foreign revenues when the dollar strengthens and not correspondingly decreasing our expenses. The Company does not currently hedge its currency exposure. In the future, we may engage in hedging transactions to mitigate foreign exchange risk.

The translation of the Company’s subsidiaries forint denominated balance sheets into U.S. dollars, as of December 31, 2008, has not been affected by the U.S. dollar against the Hungarian forint due to recent strengthening of the U.S. dollar. The currency has changed from 172.61 as of December 31, 2007 to 187.91 as of December 31, 2008, an approximate 8.9% depreciation in value. The average Hungarian forint/U.S. dollar exchange rates used for the translation of the subsidiaries forint denominated statements of operations into U.S. dollars, for the year ended December 31, 2008 and 2007 were 171.8 and 183.64, respectively.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS No. 141(R)"), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS No. 141R in 2009 to have a material effect on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. SFAS No. 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS No. 160 in 2009 to have a material effect on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB ratified the consensus in Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1 defines collaborative arrangements and requires collaborators to present the result of activities for which they act as the principal on a gross basis and report any payments received from (made to) the other collaborators based on other applicable authoritative accounting literature, and in the absence of other applicable authoritative literature, on a reasonable, rational and consistent accounting policy is to be elected. EITF 07-1 also provides for disclosures regarding the nature and purpose of the arrangement, the entity’s rights and obligations, the accounting policy for the arrangement and the income statement classification and amounts arising from the agreement. EITF 07-1 will be effective for fiscal years beginning after December 15, 2008, which will be the Company’s fiscal year 2009, and will be applied as a change in accounting principle retrospectively for all collaborative arrangements existing as of the effective date. The Company does not expect the adoption of EITF 07-1 in 2009 to have a material effect on its consolidated financial position, results of operations or cash flows.

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In June 2008, the FASB ratified the consensus on Emerging Issues Task Force (EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of SFAS No. 133, for purposes of determining whether the instrument should be classified as an equity instrument or accounted for as a derivative instrument. The provisions of EITF Issue No. 07-5 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be applied retrospectively through a cumulative effect adjustment to retained earnings for outstanding instruments as of that date. The Company does not expect the adoption of EITF 07-05 to have a material effect on its consolidated financial position, results of operations or cash flows.

In March 2008, the FASB” issued SFAS No. 161, “ Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133” (“SFAS No. 161”) .   SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows.  Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged.  The Company does not expect the adoption of SFAS No. 161 to have a material effect on its consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”.   The Company is required to adopt FSP 142-3 on January 1, 2009, earlier adoption is prohibited.  The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not expect the adoption of FSP No. FAS 142-3 to have a material effect on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162").  SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy).  SFAS No. 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles."  The Company does not expect the adoption of SFAS No. 162 to have a material effect on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) " ("FSP APB 14-1").  FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate.  FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis.  The Company is currently evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”, applies to financial guarantee insurance contracts issued by insurance enterprises.    The standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, including interim periods in that year. The Company does not expect the adoption of SFAS 163 to have a material effect on its consolidated financial statements.

In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company does not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on its consolidated financial position, results of operations or cash flows.

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In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This position clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This position was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption had no impact on the Company’s consolidated financial statements.

In December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which is effective for fiscal years ending after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value measurements of plan assets that would be similar to the disclosures about fair value measurements required by SFAS 157. The Company is assessing the potential effect of the adoption of FSP 132(R)-1 on its consolidated financial statements.  

In December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities. The FSP requires extensive additional disclosure by public entities with continuing involvement in transfers of financial assets to special-purpose entities and with variable interest entities (VIEs), including sponsors that have a variable interest in a VIE. This FSP became effective for the first reporting period ending after December 15, 2008 and did not have any material impact on the Company's consolidated financial statements.

In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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Item 8. Financial Statements and Supplementary Data.

SOLAR THIN FILMS, INC.

Index to Financial Statements

	Page No.
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets at December 31, 2008 and 2007	F-2
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2008 and 2007	F-3
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2008 and 2007	F-4 to F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007	F-6
Notes to Consolidated Financial Statements	F-7 to F-34

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Solar Thin Films, Inc.

Dix Hills, New York

We have audited the consolidated balance sheets of Solar Thin Films, Inc. and Subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related statements of operations and comprehensive income (loss), stockholders' deficit and cash flows for each of the two years in the period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Solar Thin Films, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ RBSM LLP

RBSM LLP

Certified Public Accountants

New York, New York

April 15, 2009

F-1

SOLAR THIN FILMS, INC.

 CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2008 AND 2007

	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	619,257		$	4,157,476
Accounts receivable, net of allowance for doubtful accounts of $696,067 and $-0-, respectively		194,341			459,574
Accounts receivable, related party, net of allowance for doubtful accounts of $831,863 and $-0-, respectively (Note  1)		500,000			1,456,863
Inventory (Note  3)		207,041			191,715
Advances to suppliers		931,370			84,928
Note receivable, net of allowance for doubtful accounts of $250,000 (Note 4)		-			-
Deposits and other current assets (Note 5)		378,331			84,960
Total current assets		2,830,340			6,435,516
Property, plant and equipment, net of accumulated depreciation of $439,998 and $341,896, respectively (Note 6)		413,241			595,030
Other assets:
Deferred financing costs, net of accumulated amortization of $581,000 and $506,796, respectively		26,500			100,704
Investments into CG Solar, at cost (Note 1)		1,500,000			-
Deposits		38,072			-
Other assets		3,893			7,682
Total other assets		1,568,465			108,386
Total assets	$	4,812,046		$	7,138,932
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities (Note 7)	$	4,028,115		$	3,072,799
Notes payable, current portion (Note 10)		2,560,997			-
Advances received from customers		1,969,390			-
Deferred revenue		33,452			-
Note payable-other (Note 8)		1,500,000			1,500,000
Total current liabilities		10,091,954			4,572,799
Convertible notes payable, net of unamortized discount (Note 10)		-			1,773,746
Dividends payable (Note 9)		143,778			156,522
Total long term debt		143,778			1,930,268
Commitments and contingencies (Note 17)
Minority interests (Note 13 )		1,146,588			999,496
Stockholders” Deficit
Preferred stock, par value $0.01 per share; 2,700,000 shares authorized:
Series A Preferred stock, par value $0.01 per share; 1,200,000 shares designated; -0- shares issued and outstanding at December 31, 2008 and 2007		-			-
Series B Preferred stock, par value $0.01 per share; 1,500,000 shares designated:
Series B-1 Preferred stock, par value $0.01 per share, 1,000,000 shares designated, 228,652 shares issued and outstanding at December 31, 2008 and 2007		2,286			2,286
Series B-3 Preferred stock, par value $0.01 per share, 232,500 shares designated, 47,518 shares issued and outstanding at December 31, 2008 and 2007		475			475
Series B-4 Preferred stock, par value $0.01 per share, 100,000 shares designated, -0- shares issued and outstanding at December 31, 2008 and 2007		-			-
Common stock, par value $0.01 per share, 150,000,000 shares authorized, 57,810,601 and 57,012,601 shares issued and outstanding as of December 31, 2008 and 2007, respectively (Note11)		578,106			570,126
Additional paid in capital		24,838,003			22,857,742
Treasury stock		(80,000	)		(80,000	)
Deferred compensation		(26,250	)		(79,750	)
Accumulated deficit		(32,549,564	)		(24,075,554	)
Accumulated other comprehensive income (loss)		666,670			441,044
Total stockholders' deficit		(6,570,274	)		(363,631	)
Total Liabilities and Stockholders' Deficit	$	4,812,046		$	7,138,932
The accompanying notes are an integral part of these consolidated financial statements

F-2

SOLAR THIN FILMS, INC.

  CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2008 AND 2007

	2008			2007
REVENUE:
Equipment sales	$	3,289,517		$	5,779,578
Factory Sales		147,262			-
Total revenue		3,436,779			5,779,578
Cost of sales (exclusive of depreciation and amortization shown separately below)		2,356,255			4,779,962
Gross profit		1,080,524			999,616
OPERATING EXPENSES:
General, selling and administrative expenses		7,745,174			4,243,401
Research and development		120,000			360,000
Depreciation and amortization expense		190,025			220,860
Total operating expenses		8,055,199			4,824,261
NET LOSS FROM OPERATIONS		(6,974,675	)		(3,824,645	)
Other income/(expense):
Loss on settlement of real estate deposits		(260,746	)		-
Foreign currency transaction loss		(56,061	)		(105,503	)
Interest expense, net		(1,178,465	)		(4,527,940	)
Debt acquisition costs		(74,204	)		(395,837	)
Other income		2,237			89,041
Net loss before provision for income taxes and minority interest		(8,541,914	)		(8,764,884	)
Provision for income taxes		-			-
Net loss before minority interest		(8,541,914	)		(8,764,884	)
Minority interest (Note 13)		67,904			17,089
NET LOSS	$	(8,474,010	)	$	(8,747,795	)
Foreign currency translation gain		225,626			171,382
Comprehensive Loss	$	(8,248,384	)	$	(8,576,413	)
Net Loss  per common share (basic and diluted)	$	(0.14	)	$	(0.21	)
Weighted average shares outstanding (basic and diluted)		57,664,948			42,452,053
The accompanying notes are an integral part of these consolidated financial statements

F-3

SOLAR THIN FILMS, INC.

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

YEARS ENDED DECEMBER 31, 2008 AND 2007

	Preferred Series B-1				Preferred Series B-3				Preferred Series B-4						Common shares
	Shares		Amount		Shares		Amount		Shares			Amount			Shares		Amount
Balance at December 31, 2006		228,652	$	2,286		47,518	$	475		95,500		$	955			16,269,597	$	162,696
Fractional shares issued upon 1.6 to 1 reverse split on February 9, 2007		-		-		-		-		-			-			1,504		15
Settlement of minority interest		-		-		-		-		-			-			-		-
Effect of adoption of EITF 00-19-2 change in accounting principle (Note 1)		-		-		-		-		-			-			-		-
Issuance of 33,425,000 shares of common stock for conversion of 95,500 Preferred B-4 shares		-		-		-		-		(95,500	)		(955	)		33,425,000		334,250
Issuance of 1,312,500 shares of common stock in exchange for convertible notes payable		-		-		-		-		-			-			1,312,500		13,125
Common stock issued in June 2007 for services rendered at $0.48 per share		-		-		-		-		-			-			400,000		4,000
Fair value of warrants issued in conjunction with settlement of convertible debt		-		-		-		-		-			-			-		-
Fair value of vested portion of 3,000,000 options issued to an officer		-		-		-		-		-			-			-		-
Issuance of 1,575,000 shares of common stock to acquire minority interest in subsidiary at $0.75 per share		-		-		-		-		-			-			1,575,000		15,750
Issuance of 4,029,000 shares of common stock in exchange for convertible notes payable		-		-		-		-		-			-			4,029,000		40,290
Foreign currency translation gain		-		-		-		-		-			-			-		-
Net loss		-		-		-		-		-			-			-		-
Balance, December 31, 2007		228,652		2,286		47,518		475		-			-			57,012,601		570,126
Issuance of 595,000 shares of common stock in exchange for convertible notes payable		-		-		-		-		-			-			595,000		5,950
Fair value of vested portion of employee options issued		-		-		-		-		-			-			-		-
Sale of majority owned subsidiary common stock by subsidiary		-		-		-		-		-			-			-		-
Issuance of 199,000 shares of common stock in exchange for convertible notes payable		-		-		-		-		-			-			199,000		1,990
Common stock to be issued in connection with services rendered		-		-		-		-		-			-			-
Issuance of 4,000 shares of common stock in exchange for convertible notes payable		-		-		-		-		-			-			4,000		40
Amortization of deferred compensation		-		-		-		-		-			-			-		-
Foreign currency translation gain		-		-		-		-		-			-			-		-
Net loss		-		-		-		-		-			-			-		-
		228,652	$	2,286		47,518	$	475	$	-		$	-			57,810,601	$	578,106

The accompanying notes are an integral part of these consolidated financial statements

F-4

SOLAR THIN FILMS, INC.

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (continued)

YEARS ENDED DECEMBER 31, 2008 AND 2007

	Additional									Other					Total
	Paid in			Deferred			Treasury			Comprehensive		Accumulated			Stockholders'
	Capital			Compensation			Stock			Income (loss)		Deficit			Deficit
Balance at December 31, 2006	$	3,627,872		$	-		$	(80,000	)	$	269,662	$	(4,790,109	)	$	(806,163	)
Fractional shares issued upon 1.6 to 1 reverse split on February 9, 2007		(15	)		-			-			-		-			-
Effect of adoption of EITF 00-19-2 change in accounting principle (Note 1)		10,821,900			-			-			-		(9,356,400	)		1,465,500
Issuance of 33,425,000 shares of common stock for conversion of 95,500 Preferred B-4 shares		(333,295	)		-			-			-		-			-
Issuance of 1,312,500 shares of common stock in exchange for convertible notes payable		511,875			-			-			-		-			525,000
Common stock issued in June 2007 for services rendered at $0.48 per share		188,000			-			-			-		-			192,000
Fair value of warrants issued in conjunction with settlement of convertible debt		61,767			-			-			-		-			61,767
Fair value of vested portion of 3,000,000 options issued to an officer		356,618			-			-			-		-			356,618
Issuance of 1,575,000 shares of common stock to acquire minority interest in subsidiary at $0.75 per share		1,165,500			-			-			-		(1,181,250	)		-
Issuance of 4,029,000 shares of common stock in exchange for convertible notes payable		3,988,710			-			-			-		-			4,029,000
Issuance of majority owned subsidiary common stock in exchange for services to be rendered		87,000			(87,000	)		-			-		-			-
Issuance of majority owned subsidiary common stock in exchange for services rendered		50,000			-			-			-		-			50,000
Sale of majority owned subsidiary common stock by subsidiary		2,331,810			-			-			-		-			2,331,810
Amortization of deferred compensation		-			7,250			-			-		-			7,250
Foreign currency translation gain		-			-			-			171,382		-			171,382
Net loss		-			-			-			-		(8,747,795	)		(8,747,795	)
Balance, December 31, 2007		22,857,742			(79,750	)		(80,000	)		441,044		(24,075,554	)		(363,631	)
Issuance of 595,000 shares of common stock in exchange for convertible notes payable		589,050			-			-			-		-			595,000
Fair value of vested portion of employee options		1,085,016			-			-			-		-			1,085,016
Sale of majority owned subsidiary common stock by subsidiary		105,225			-			-			-		-			105,225
Issuance of 199,000 shares of common stock in exchange for convertible notes payable		197,010			-			-			-		-			199,000
Issuance of 4,000 shares of common stock in exchange for convertible notes payable		3,960			-			-			-		-			4,000